ACTU MINIMUM WAGES CASE 2004
ACTU Written Reply Submission
9 March 2004
D No. 4/2004
ACTU Minimum Wages Case Reply Submission 2004 i
ACTU MINIMUM WAGES CASE 2004
ACTU Written Reply Submission
9 March 2004
Table of Contents i List of Figures iii List of Tables iii
R1 Introduction ...........................................................................................1
$XVWUDOLD¶V�(FRQRP\�LV�6WURQJ .........................................................................2 7KH�&RQWULEXWLRQ�RI�$ZDUG�ZRUNHUV�WR�$XVWUDOLD¶V�SURVSHULW\............................3 Award Wages Lag Behind ...............................................................................4 Needs of the Low Paid.....................................................................................5 There will be no Adverse Economic Effects.....................................................6 The ACTU Claim is Justified ............................................................................7
R2 Award Workers and Award Industries ................................................9
The Economic Performance of Award industries .............................................9 Output ........................................................................................................9 Profits.......................................................................................................10 Employment .............................................................................................14 Inflation ....................................................................................................16 Productivity ..............................................................................................18
Award Workers ..............................................................................................26 Conclusion .....................................................................................................29
R3 Wages Update .....................................................................................31
Introduction ....................................................................................................31 Average weekly earnings...............................................................................31 Wage Cost Index (WCI) .................................................................................32 Average Earnings on a National Accounts Basis (AENA)..............................33 Management and Executive Remuneration ...................................................33
R4 The ACTU Claim is Moderate .............................................................35
Costing the Claim...........................................................................................35 The Level of Increase for Award Workers......................................................39 Conclusion .....................................................................................................40
R5 Economic Conditions and Prospects................................................41
Economic Growth.....................................................................................42 Aggregate Demand..................................................................................43
ii ACTU Minimum Wages Case Reply Submission 2004
Private Consumption................................................................................43 Private Investment Expenditure ...............................................................44 Business Sector .......................................................................................45 Employment .............................................................................................45 Wages......................................................................................................46 Inflation ....................................................................................................46 Productivity ..............................................................................................48 International Economy .............................................................................48 Exchange Rate ........................................................................................50 Manufacturing ..........................................................................................51
R6 Economic Effects................................................................................53
Aggregate Effects ..........................................................................................53 Sectoral or Enterprise Effects ........................................................................54 Academic Research.......................................................................................56
Hyslop and Stillman .................................................................................56 Manning ...................................................................................................57 Leigh ........................................................................................................57 Lewis........................................................................................................60
Surveys..........................................................................................................62
R7 Needs of the Low Paid........................................................................69
Introduction ....................................................................................................69 Budget Standards ..........................................................................................69
Commonwealth ........................................................................................69 ACCI ........................................................................................................70 NFF..........................................................................................................76 Conclusion ...............................................................................................77
Witness Evidence ..........................................................................................77 Inequality .......................................................................................................79 Other Submissions.........................................................................................80
Tax and Transfer System ± AIG...............................................................80 Financial Stress .......................................................................................84 Underemployment, unemployment and needs of the low paid ................87
R8 Other Matters.......................................................................................89
The Proposed ACCI Change to the Principles...............................................89 The AiG Proposed Change to the Principles .................................................89 Skills Based Classification Structure and Relativities.....................................90 Award Structures ...........................................................................................90 The Commonwealth proposal to defer the decision date ...............................91 Submission of DEAC / NCID and ACCI regarding Disability Employment .....92
Submissions of the DEAC and NCID .......................................................92 Submissions of ACCI regarding Supported Wage Considerations ..........92
ACTU Minimum Wages Case Reply Submission 2004 iii
List of Figures
Figure R2.1: Rate of Return on Assets ± Award Dependent Industries................... 14 Figure R2.2: Industry Award coverage and Inflationary Outcomes ......................... 18 Figure R6.1: Elasticity v. % Increase ...................................................................... 60
List of Tables
Table R1.1 Key Economic Indicators........................................................................ 3 Table R2.1: Standard Errors on Movement estimates for Award Only and Agreement
Employees.......................................................................................... 15 Table R2.2 Industry Award coverage and Inflationary Outcomes ........................... 18 Table R2.3: Award Reliant Industry Unit Labour Costs........................................... 20 Table R2.4: Standard Error on Movement in Award Only Proportions ..................... 25 Table R3.1: Annual percentage increases in key wage movements. ...................... 31 Table R4.1: The Fallacy Underlying Table 4 of ACCI ± Chapter 10 ......................... 37 7DEOH�5�����8VLQJ�$&&,¶V�PHWKRGRORJ\�WR�FDOFXODWH�WKH�SURSRUWLRQ�RI�HPSOR\HHV�
who receive an increase in wages as a direct result of the Safety Net decision .............................................................................................. 38
Table R5.1: Agricultural Production, Chain volume measures (a): Seasonally Adjusted.............................................................................................. 43
Table R5.2: World GDP Growth ............................................................................. 50 7DEOH�5������5HZRUNLQJ�/HLJK¶V�$QDO\VLV�ZLWK�3URSHU�'DWD ..................................... 59 Table R7.1: Single Income, Two Parent Family, with Two Children......................... 81 Table R7.2: Two Income (equally distributed) Two Parent Family with Two Children
......................................................................................................................... 81 Table R7.3: Two Income (ratio of 2:1) Two Parent Family with Two Children .......... 82 Table R7.4: Single Parent Family with One Child .................................................... 82 Table R7.5: Single Person....................................................................................... 82 Table R7.6: EMTRs of individuals with earnings according to their deciles of gross
family income...................................................................................... 84 Table R7.7: Financial Stress Indicators: person in Households whose principal
source of income is employee income 2002 ....................................... 86
iv ACTU Minimum Wages Case Reply Submission 2004
ACTU Minimum Wages Case Reply Submission 2004 1 Chapter 1 - Introduction
R1 Introduction
R1.1 The A&78¶V� FODLP� IRU� D� ������� LQFUHDVH� LQ� DOO� DZDUG� UDWHV� LV� PRGHUDWH��
affordable and fair. Nothing in the submissions of those opposing the ACTU
claim substantiates any other conclusion.
R1.2 The key points which emerge from more recent economic data and the
submissions of those opposing the ACTU claim are:
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conceded by both ACCI and the Commonwealth even before the release
of the December National Accounts data on 3 March. The National
Accounts data shows a robust and impressive performance. The
seasonally adjusted growth in GDP for the December quarter (1.4%) is the
highest figure for four years.
· 7KHUH�LV�VLPSO\�DQ�DEVHQFH�RI�DQ\�FUHGLEOH�HYLGHQFH�WKDW�ODVW�\HDU¶V�6DIHW\�
Net Adjustment (or any previous Safety Net Adjustment) has had any
adverse economic impact either at the aggregate, sectoral or enterprise
level;
· None of the opposing submissions provide any robust answer to the SPRC
research regarding needs of the low paid.
R1.3 The three dot points above logically impel the conclusion that the Safety Net
Adjustment this year can and ought be higher than the Safety Net Adjustment
last year. However, the opposing submissions of the Commonwealth and the
employer groups propose Safety Net Adjustments which are significantly
below that which was awarded last year and in some cases significantly below
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Commonwealth, AiG and ACCI positions in these proceedings are simply not
credible.
2 ACTU Minimum Wages Case Reply Submission Chapter 1 - Introduction
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R1.4 Economic data released since the ACTU filed its original submissions
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The December quarter National Accounts show GDP growth in that quarter of
1.4 per cent��VHDVRQDOO\�DGMXVWHG���JLYLQJ�$XVWUDOLD¶V�HFRQRP\�DQ�DQQXDOLVHG�
growth rate in the last six months in excess of 5 per cent. Prices and wages
growth have continued to be moderate with little change in either the CPI or
the Wage Cost Index from the September quarter figures referred to in our
original submissions. CPI is currently at 2.4 per cent and the most recent
Wage Cost Index is 3.6 per cent in trend terms (3.7 per cent seasonally
adjusted). Labour market conditions continue to be strong, unemployment
remains at its lowest levels for 22 years.
R1.5 Importantly, this is an assessment of the economic performance of the
economy which is not in any sense contradicted by the opposing submissions.
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outlook essentially confirms the ACTU position whilst ACCI specifically accept
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IDFHG�RQH�\HDU�DJR´���7KH�$L*�VXEPLVVLRQ�HVVHQWLDOO\�VHHNV�WR�DYRLG�WKH�LVVXH�
RI� $XVWUDOLD¶V� LPproved overall economic outlook by focussing only on the
potential negative consequences of an appreciation in the dollar. In doing so
they vastly overstate the significance of this issue both for the economy as a
whole and in the context of these proceedings and ignore entirely the fact that
an appreciating dollar has some benefits as well as some costs for economic
performance.
R1.6 Table R1.1 compares a range of key economic indicators from this time in
2002, this time last year and most recently available data. The data confirms
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and in certain key respects stronger than at the same time last in 2002. Of
particular note is the strong ongoing decline in unemployment down from 6.7
per cent in January 2002 to 5.7 per cent now.
ACTU Minimum Wages Case Reply Submission 2004 3 Chapter 1 - Introduction
Table R1.1: Key Economic Indicators
Same time 2 years
previous (a)
This time last year (a)
Most recent data (a)
MYEFO forecast
(2003-04)
GDP (Trend) 3.8 3.1 3.5 3 3/4
GDP (Seasonally Adjusted) 4.4 2.8 4.0
Inflation (CPI) 3.1 3.0 2.4 2 1/4
Employment Growth 1.4 3.0 1.8 1 1/2
Unemployment 6.7 6.1 5.7 5 3/4
Wages
WCI 3.4 3.5 3.6 n/a
AENA 4.8 3.2 3.6 3 3/4
(a) *Trend figures have been used (except for CPI and GDP (Seasonally Adjusted)) *GDP, CPI and WCI are year to December 2001, 2002 and 2003 , respectively *Labour Force statistics are year to January 2002, 2003 and 2004, respectively
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R1.7 In its initial submissions the ACTU provided extensive evidence regarding the
economic performance of the three most award dependent industries:
Accommodation, cafes and restaurants, Retail trade and Health and
community services. The original submissions showed that these industries
had growth in output and employment exceeding the all industry average for
the period 1996 to 2003, that real unit labour costs had fallen in the same
period for each of the industries and that in Accommodation, cafes and
restaurants and Retail trade profits have increased by more than 80 per cent.
R1.8 None of the material advanced by ACCI or the AiG touches in any way on this
evidence.
R1.9 The Commonwealth does not dispute any of these facts. Rather, the
Commonwealth engages in an analysis which purports to show:
· that the increase in employment in these three industries has occurred
only in relation to employees under agreements;
· that award dependency is negatively associated with productivity;
4 ACTU Minimum Wages Case Reply Submission Chapter 1 - Introduction
· that growth in profits has not been as significant as the ACTU contends if
one looks at an alternative measure.
R1.10 The Commonwealth analysis is subject to significant flaws:
· The analysis in relation to employment relies on statistically insignificant
movements in proportions of award only employees and conflates the
notion of changes in wage setting arrangements with employment growth;
· In relation to the regression analyses on which the Commonwealth rely to
establish a negative linkage between productivity performance and award
dependency Professor W Mitchell of the University of Newcastle says:
In summary, no professional econometrician would attempt to draw inferences
from the regressions presented for the reasons presented above. In the
professional literature, this sort of analysis would be rejected immediately as
amateurish and in violation of professional practice.
· The approach adopted by the Commonwealth in relation to profits is
conceptually flawed.
R1.11 In short, none of the opposing submissions advance material which warrants
any departure from the conclusions which the ACTU advanced in its original
submissions regarding the contribution of award dependent workers to
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Award Wages Lag Behind
R1.12 No opposing party disputes that award only workers are concentrated at the
bottom of the wages distribution, that in recent years award only workers have
received average increases less than other aggregate wages measures or
that the real after tax wages of the lowest five classifications in the Metal
Industry Award have barely moved and in some cases worsened in the last
four years.
ACTU Minimum Wages Case Reply Submission 2004 5 Chapter 1 - Introduction
R1.13 The submissions of the Commonwealth seek to dissipate the force of these
propositions by claiming that the ACTU fails to pay sufficient attention to the
dispersion of percentage increases under Federal agreements and between
industries. An analysis of dispersed outcomes however confirms the ACTU
proposition that generally award workers have fared worse than others in the
community.
R1.14 In short, none of the material advanced by opposing parties warrants any
change to the conclusions for which the ACTU contended regarding the
wages of award workers in its original submissions.
Needs of the Low Paid
R1.15 The independent research on the needs of the low paid by the University of
NSW Social Policy Research Centre confirms the need for significant
increases in minimum wages to allow working Australian families a decent
standard of living. Nothing in the opposing submissions demonstrates any
flaw in that research. The Commonwealth simply repeats its earlier criticisms
of the SPRC research without in any way responding to the material in the
SPRC paper which dealt with those criticisms. AiG, in its submissions, simply
ignores the research. ACCI and NFF essentially criticise the research on the
basis that it is Sydney based. Two points may be made regarding this sort of
critique:
· Workers in Sydney have to live on the Federal Minimum Wage no less
than workers in other states or regions. In assessing the adequacy of the
Federal Minimum Wage research based on living costs in Sydney is
relevant, indeed it could be said critical, to an evaluation of whether the
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· The SPRC report acknowledges the possibility of some regional variation
in costs and provides some quantification in relation to housing of that
likely variation. The ACCI and NFF attempt to provide a quantification of
variations in regional costs. These attempts are problematic.
6 ACTU Minimum Wages Case Reply Submission Chapter 1 - Introduction
There will be no Adverse Economic Effects
R1.16 There is simply no credible evidence provided in the opposing submissions
that any previous Safety Net Adjustment has had any adverse impact on
economic growth, employment, inflation or productivity.
R1.17 It is apparent that the Commonwealth has, in effect, abandoned any argument
that the ACTU claim would have any adverse macroeconomic effect. This
much is evident from its failure to provide a costing of the ACTU claim to
model its effects using the TRYM model. Neither the AiG or ACCI attempt
any serious analysis of macroeconomic effects. Neither attempts a genuine
macroeconomic costing. ACCI once again purports to cost the private sector
impact of the claim but that costing is flawed in any event.
R1.18 Nor does any party provide credible evidence of any adverse economic
impact arising from past Safety Net Adjustments:
· AiG relies on data which is four years out of date regarding growth in hours
worked by low paid workers. This provides no basis on which to draw any
conclusion regarding the effect of recent Safety Net Adjustments;
· ACCI and the RMI rely on survey evidence. The questions asked and
methodology used in the surveys do not allow any proper conclusion to be
drawn regarding adverse economic effects;
· 7KH�&RPPRQZHDOWK¶V�DQDO\VLV�� DV� LQGLFDWHG�DERYH�� UHOLHV�H[WHQVLYHO\� RQ�
the use of regressions with little merit;
· The NFF relies on modelling of an aggregate demand for rural labour. The
modelling provides no evidence regarding the impact of Safety Net
Adjustments and, in any event, contains errors of specification.
R1.19 It is two matters which the opposing submissions simply do not address which
demonstrate most starkly their inability to provide cogent evidence of an
adverse economic impact as a result of the ACTU claim:
ACTU Minimum Wages Case Reply Submission 2004 7 Chapter 1 - Introduction
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combined effect of the 2002 Safety Net Adjustment and Superannuation
Guarantee Charge increase referred to at Table 1.3 and paragraphs 4.8 to
4.10, 6.6, 6.14 and 6.15 of its original submissions. The combined effect
of the 2002 SNA and SGC increases shows that an increase of the order
of the ACTU claim is sustainable without adverse economic effects;
· No opposing party makes any mention of the fact that since the Pastoral
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Applications involving two employees (one for each Application) have been
received seeking relief from the payment of that Safety Net Adjustment.
This shows dramatically that even in adverse conditions moderate safety
net adjustments have no significant impact on employment.
The ACTU Claim is Justified
R1.20 None of the opposing submissions provides any basis on which to refuse the
ACTU claim. In many key respects the material in the opposing submissions
confirms the fundamental basis for the grant of the claim, particularly in
relation to the analysis of AustralLD¶V� HFRQRPLF� SHUIRUPDQFH�� � 7KH� FHQWUDO�
SURSRVLWLRQV�RI� WKH�$&78¶V� FDVH� UHPDLQ�XQWRXFKHG�E\� WKH�VXEPLVVLRQV�DQG�
evidence of those opposed to the claim.
8 ACTU Minimum Wages Case Reply Submission Chapter 1 - Introduction
ACTU Minimum Wages Case Reply Submission 2004 9 Chapter 2 ± Award Workers and Award Industries
R2 Award Workers and Award Industries
R2.1 In Chapter 2 of its original submissions the ACTU conducted an analysis of
the economic performance of the three most award dependent sectors and
showed that the performance of those sectors has been strong. Further, the
ACTU showed that award workers are paid less than the rest of the
community and in recent years had seen their wages fall behind others in the
community with after tax award wages for the low paid having essentially
remained the same since 1999.
The Economic Performance of Award industries
R2.2 No party other than the Commonwealth disputes any of the material in the
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The Commonwealth does not directly contradict any of the propositions for
which the ACTU contends, rather suggesting that the ACTU submissions do
not provide a full picture. ACCI engages in an entirely spurious attempt to
correlate award dependency with higher inflation.
Output
R2.3 7KH� &RPPRQZHDOWK� GHDOV� ZLWK� WKH� $&78¶V� FRQWHQWLRQV� UHJDUGLQJ� RXWSXW�
growth in award dependent industries in two paragraphs: Commonwealth
3.30 and 3.31. In paragraph 3.30 of its submissions the Commonwealth
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submissions showed that growth in output in each of the three most award
dependent industries had exceeded the all industry average for the period
1996 to 2003 and had greatly exceeded real growth in the Federal Minimum
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bearing on this argument.
10 ACTU Minimum Wages Case Reply Submission Chapter 2 ± Award Workers and Award Industries
Profits
R2.4 $W�SDUDJUDSKV������WR������WKH�&RPPRQZHDOWK�FULWLFLVHV�WKH�$&78¶V�UHOLDQFH�
on Gross Operating Profits data which showed that in Retail trade profits had
increased 99 per cent in the period 1996 to 2003 and in Accommodation,
cafes and restaurants Gross Operating Profits had grown 82.1 per cent in the
same period.
R2.5 Essentially this critique is twofold:
· That the data relied upon by the ACTU only includes incorporated
businesses with 20 or more employees; and
· That profits should be measured as a proportion of end year net capital
stock.
Neither of these criticisms withstand scrutiny.
R2.6 The ABS publication on which the ACTU relied in its original submissions
does only cover incorporated businesses with 20 or more employees.
However, the Commonwealth suggestion that a superior means of examining
industry profits is to use Gross Operating Surplus and Gross Mixed Income is
simply without foundation. The Gross Mixed Income category in the National
Accounts captures both returns to labour and returns to capital for
unincorporated businesses. To add Gross Mixed Income to Gross Operating
Surplus is not to provide any measure of profit, but rather provides a mixed
measure of profits in all enterprises and returns to labour in unincorporated
enterprises. Problems with the treatment of Gross Mixed Income are dealt
with in Productivity ± general wages policies: Some problems arising from the
recent growth in self-employment, O. Covick (1981) 23 Journal of Industrial
Relations at 3-22.
R2.7 7KH�&RPPRQZHDOWK¶V�FODLP�IRU� WKH�VXSHULRULW\�RI� WKLV�PHDVXUH�VLWV�VWDUNO\�DW�
odds with the approach of the ABS which does not aggregate Gross Mixed
Income to Gross Operating Surplus in its calculation of profit share in the
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ACTU Minimum Wages Case Reply Submission 2004 11 Chapter 2 ± Award Workers and Award Industries
of the Treasurer, who on release of the most recent National Accounts data
referring to the profit share calculated using Gross Operating Surplus figures
alone said:
In addition to that, the share of profits again increased, and the profit share of the
economy at 25.6 per cent of total factor income is now the highest ever recorded
in Australian history. That is a measure of the profitability of Australian
companies in the current environment.
Treasurer, Mr Costello, Press Conference 3 March 2004
R2.8 7KH� &RPPRQZHDOWK¶V� DSSURDFK� RI� H[SUHVVLQJ� LWV� ³SURILW´� PHDVXUH� DV� D�
proportion of end year net capital stock is also conceptually problematic.
R2.9 The unqualified Commonwealth assertion that the industry profit rate is a
µVXSHULRU�PHDVXUH�RI�SURILWDELOLW\¶�LV�VTXDUHO\�DW�RGGV�ZLWK�WKH�H[SHUW�OLWHUDWXUH�
on this matter.
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JUHDWO\�LQIOXHQFHG�E\�LUUHOHYDQW�IDFWRUV��HYHQ�XQGHU�LGHDO�FRQGLWLRQV���$Q\� µPDQ�RI�
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industries, or of the same industry in different countries, and draws inferences
from their magnitudes as to the relative profitability of investments in different
XVHV�RU�FRXQWULHV��GRHV�VR�DW�KLV�RZQ�SHULO�´
*�&�+DUFRXUW��³7KH�$FFRXQWDQW�LQ�D�*ROGHQ�$JH´��2[IRUG�(FRQRPLF�3DSHUV�9�����No 1 (Mar 1965), p 80
³7KH� HFRQRPLF� UDWH� RI� UHWXUQ� RQ� DQ� Lnvestment is, of course, that discount rate
that equates the present value of its expected net revenue stream to its initial
RXWOD\��«� LW� LV� >WKLV� UDWH@� WKDW� LV� HTXDOLVHG�ZLWKLQ� DQ� LQGXVWU\� LQ� ORQJ-run industry
FRPSHWLWLYH�HTXLOLEULXP�DQG�«�HTXDOLVHG�HYHU\where in a competitive economy in
long-UXQ�HTXLOLEULXP���,W� LV�DQ�HFRQRPLF�UDWH�RI�UHWXUQ�«�DERYH�WKH�FRVW�RI�FDSLWDO�
that promotes expansion under competition and is produced by output restriction
under monopoly. Thus, the economic rate of return is the only correct measure of
the profit rate for purposes of economic analysis. Accounting rates of return are
useful only insofar as they yield information as to economic rates of return.
12 ACTU Minimum Wages Case Reply Submission Chapter 2 ± Award Workers and Award Industries
« � RQO\� E\� DFFLGHQW� ZLOO� DFFRXQWLQJ� UDWHV� RI� UHWXUQ� EH� LQ� RQH-to-one
coUUHVSRQGHQFH�ZLWK�HFRQRPLF�UDWHV�RI�UHWXUQ�´
)UDQNOLQ�0�)LVKHU�DQG�-RKQ�-�0F*RZDQ��³2Q�WKH�0LVXVH�RI�$FFRXQWLQJ�5DWHV�RI�UHWXUQ�WR�,QIHU�0RQRSRO\�3URILWV´��$PHULFDQ�(FRQRPLF�5HYLHZ�9�����1R�����0DU�
1983, pp 82 and 83)
See also:
-�$�.D\�� ³$FFRXQWDQWV�� WRR� Could be happy in a Golden Age: The Accountants 5DWH� RI� 3URILW� DQG� WKH� ,QWHUQDO�5DWH� RI�5HWXUQ´��Oxford Economic Papers V 28, No 3 (Nov 1976)
)� .� :ULJKW�� ³$FFRXQWLQJ� 5DWH� RI� 3URILW� DQG� ,QWHUQDO� 5DWH� RI� 5HWXUQ´�� Oxford Economic Papers V 30, No 3 (Nov 1978)
)UDQNOLQ� 0� )LVKHU�� ³7KH� 0LVXVH� RI� $FFRXQWLQJ� 5DWHV� RI� UHWXUQ�� 5HSO\´� The American Economic Review, V 74 No. 3 (June 1984).
R2.10 7KH�FUX[�RI�WKH�LVVXH�FHQWUHV�RQ�GLIIHUHQFHV�EHWZHHQ�WKH�HFRQRPLVW¶V�DQG�WKH�
DFFRXQWDQW¶V�FRQFHSW�RI�WKH�UDWH�RI�UHWXUQ�
· The economic rate of return is (as expressed above in the quotation from
Fisher and McGowan) a relationship between discounted expected future
returns from an investment and the initial outlay.
· The accounting rate of return is (some variant of) a relationship between
net revenues and the book value of assets in a particular year.
R2.11 The ABS capital stock series reflects an accounting framework. It does not
seek to value the capital stock on the basis of discounted expected future
returns. It is this series that the Commonwealth advocates be used in
calculating industry profit rates. The Commonwealth here seeks to use the
resultant series for precisely the purposes of economic analysis that Harcourt,
and Fisher and McGowan, demonstrate to be perilous, inappropriate, and
misleading ± making comparisons across industries and over time [paragraph
2.30 and Chart 2.1].
R2.12 This is no minor issue. In general the accounting rate of return is no useful or
practical guide at all to profit rates (i.e. economic rates of return). In his 1984
reply Fisher identified the core problem succinctly, as follows:
ACTU Minimum Wages Case Reply Submission 2004 13 Chapter 2 ± Award Workers and Award Industries
³7KH� QXPHUDWRU� RI� WKH� DFFRXQWLQJ� UDWH� RI� UHWXUQ� LQ� TXHVWLRQ� LV� FXUUHQW� SURILWV��
those profits are the consequence of investment decisions made in the past. On
the other hand, the� GHQRPLQDWRU� LV� WRWDO� FDSLWDOLVDWLRQ�� EXW� VRPH� RI� WKH� ILUP¶V�
capital will generally have been put in place relatively recently in the expectation
of a profit stream much of which is still in the future. While the economic rate of
return is the magnitude that properly relates a stream of profits to the investments
that produce it, the accounting rate of return does not. By relating current profits
to current capitalisation, the accounting rate of return fatally scrambles up the
timing.
Moreover, this defect is not something that can be corrected by averaging, nor is
it merely a start-up problem. It persists even in steady-VWDWH�JURZWK�´�[p 509-510]
R2.13 Even if these matters are set to one side the ABS publication which does
provide a measure of profits as a proportion of assets does not show the
picture for which the Commonwealth contends. The ABS publishes an annual
survey ³%XVLQHVV�2SHUDWLRQV�DQG� ,QGXVWU\�3HUIRUPDQFH´�$%6�&DWDORJXH�1R��
8140.0 which covers all public trading and private employing businesses. The
most recent data for that survey concludes with the financial year 2001. This
survey thus provides profit data for a broader range of businesses than the
PDWHULDO� LQ� WKH� $&78¶V� RULJLQDO� VXEPLVVLRQV� EXW� ZLWKRXW� WKH� FRQFHSWXDO�
difficulties of the CommRQZHDOWK¶V�*URVV�2SHUDWLQJ�6XUSOXV�DQG�*URVV�0L[HG�
Income aggregate figures.
R2.14 The survey provides a measure of return on assets, that is operating profits
before tax as a percentage of the total book value of assets by industry. This
is essentially the measure which the Commonwealth seeks to artificially
construct from National Accounts data at paragraph 2.29 and 2.30 of its
submissions. Figure R2.1 below shows the return on assets for the three
most award dependent industries compared to the all industry average
(figures are only available for the Private community services sector of Health
and community services). The figure shows that for the period 1996-97 to
2000-01 the return on assets for the Retail, Accommodation, cafes and
restaurants and Private community services industries exceeds the all
industry average in every instance.
14 ACTU Minimum Wages Case Reply Submission Chapter 2 ± Award Workers and Award Industries
Figure R2.1: Rate of Return on Assets ± Award Dependent Industries
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
1996-97 1997-98 1998-99 1999-2000 2000-01
A ll Industry
Re tail
Accom m odation, cafes and restaurants
P rivate com m unity serv ices
Source: ABS Cat. No. 8140.0
Employment
R2.15 At paragraphs 5.38 to 5.46 of its submissions the Commonwealth attempts to
GHDO�ZLWK� WKH�$&78¶V� FRQWHQWLRQ� WKDW� HPSOR\PHQW� JURZWK� LQ� WKH� WKUHH�PRVW�
award dependent industries for the period 1996 to 2003 has outstripped the
all industry average and exceeded that of the three least award dependent
LQGXVWULHV� IRU� WKH� VDPH� SHULRG�� � (VVHQWLDOO\� WKH� &RPPRQZHDOWK¶V� DQDO\VLV�
relies on the alleged increases and falls in numbers of award only workers
and agreement workers by industry as measured in the ABS Employment
Earnings and Hours publications May 2000 and May 2002.
R2.16 This analysis suffers two serious flaws:
· It conflates notions of change in pay setting arrangements with notions of
job creation and job loss. Thus, even if it were true, that award only
employment in a particular sector had reduced this does not imply any
³ORVV�RI�MREV´��UDWKHU�LW�PHUHO\�LPSOLHV�WKDW�WKHUH�KDV�EHHQ�D�FKDQJH�LQ�SD\�
setting arrangements in that industry;
ACTU Minimum Wages Case Reply Submission 2004 15 Chapter 2 ± Award Workers and Award Industries
· )XUWKHU�� DQG� LQ� DQ\� HYHQW�� DV� WKH� WDEOH� EHORZ� VKRZV� RQ� WKH� $&78¶V�
calculations the movements in employment numbers of award only and
agreement employees on which the Commonwealth relies for its analysis
are virtually all attended by relative standard errors which make them too
unreliable for use.
Table R2.1: Standard Errors on Movement estimates for Award Only and Agreement Employees
Movement estimate number of award only employees 2000-2002
Standard error
RSE % Movement Estimate Number of agreement employees
Standard error
RSE %
Mining 914** 3836 420 14578** 13144 90
Manufacturing 7159** 14663 205 -28572** 44154 155
Electricity, gas and water supply
-203** 321 159 -4434** 8332 188
Construction 16127** 15548 96 37776** 41976 111
Wholesale trade -1018** 8894 873 7602** 35419 466
Retail Trade -29991** 27175 91 -34314** 62483 182
Accommodation, Cafes and Restaurants
-3542** 10202 288 19963** 37043 186
Transport and Storage -403** 10602 2630 34000** 35369 104
Communication Services
698** 1297 186 -15943** 8926 56
Finance and Insurance -2125** 9172 432 1398** 31160 2229
Property and business services
-2678** 24256 906 117749** 70966 60
Government Administration and Defence
-33052 6057 18 56107** 33077 59
Education -38426* 10330 27 41950** 27411 65
Health and community services
-36438** 23355 64 105686** 53037 50
Cultural and recreational services
-16039* 7049 44 16426** 31003 189
Personal and other services
-17594** 10480 60 6810** 27335 401
Source: Derived from unpublished data ABS Cat. No. 6306.0
** Estimate has a relative standard error greater than 50% and is considered too unreliable for general use.
* Estimate has a relative standard error or between 25% and 50% and should be used with caution.
R2.17 In short there is simply no basis to conclude that Safety Net Adjustments have
had any adverse impact on employment growth in award dependent sectors.
To the contrary, to the extent that the data on which the Commonwealth relies
16 ACTU Minimum Wages Case Reply Submission Chapter 2 ± Award Workers and Award Industries
shows anything it demonstrates the fallacy of its proposition that decent
Safety Net Increases discourage agreement making.
R2.18 At paragraph 5.45 the Commonwealth asserts that year average hours
worked in Accommodation, cafes and restaurants experienced declines of 5.4
per cent in 2001-02 and 1.4 per cent in 2002-03 and that year average
employment also declined over these periods by 1.1 per cent and 1.9 per cent
respectively. It is not surprising that some decline occurred in the
employment performance of Accommodation, cafes and restaurants following
the 2000 Olympics and in light of the combined effects of the September 11
events, the war in Iraq and the SARS outbreak. Nonetheless, as Figure 2.6 in
WKH�$&78¶V�RULJLQDO�VXEPLVVLRQV�VKRZV��VLQFH�1RYHPEHU������HPSOR\PHQW�LQ�
this sector has been on a strong upward trend and now exceeds its previous
Olympics inflated highs.
Inflation
R2.19 The ACCI submission presents data purportedly proving a positive
relationship between award rates of pay and inflation:
Data on award coverage by state and inflation by capital city indicates a positive
correlation between the proportion of total employees whose pay is determined
by award only and the rate of inflation.
«
Data by industry shows a similar relationship. The percentage of employees in
industries whose earnings are set by award only is positively correlated with the
rate of inflation for the goods produced in those industries.
[ACCI Submission ± 2004 Safety Net Review page 5-7 ± 5-8]
R2.20 ACCI then presents two graphs showing this relationship on pages 5-8 and
5-9.
ACTU Minimum Wages Case Reply Submission 2004 17 Chapter 2 ± Award Workers and Award Industries
R2.21 However, this analysis of award coverage and inflation is fundamentally
flawed for the following reasons:
· The use of CPI December 2003 year end figures seems totally arbitrary
and chosen because it achieves the desired results.
· There are many influences on inflation such as consumer demand and
increases in wages elsewhere in the economy just to name a few.
However, ACCI have not controlled for any of these factors.
· The data for inflation on the goods and services produced in industries that
have a high concentration of award only employees is suspect and very
selective. For example the inflation for the construction industry seems to
be data for housing, which includes property rates and utilities; one has to
wonder how inflation in property rates (which are set by government
agencies) is related to inflation on goods and services produced in the
construction industry.
· Finally, Accommodation, cafes and restaurants is the highest award only
industry and yet it is conspicuously absent from the ACCI analysis (once
again it seems to be a case of picking winners).
R2.22 Just to illustrate the point, Table R2.2 and Figure R2.2 below show that by
removing Cultural and recreational services; adding in Accommodation, cafes
and restaurants and using the percentage change in year end CPI for
September 2003 there is a negative relationship between award coverage
and inflation. The ACTU does not contend for such a relationship but it shows
the speciousness of the ACCI approach.
18 ACTU Minimum Wages Case Reply Submission Chapter 2 ± Award Workers and Award Industries
Table R2.2: Industry Award coverage and Inflationary Outcomes
Industry Award Coverage (%) May 2002
Year-ended inflation (%) September quarter 2003
Health and Community Services 30.3 0.0
Construction 17.1 1.8
Transport and storage 16.4 1.4 Accommodation, Cafes and Restaurants 61.2 -1.8
Education 7.8 0.1
Communication 2.4 0.7 Source: ABS Cat. Nos. 6306.0 and 6401.0.
Figure R2.2: Industry Award coverage and Inflationary Outcomes
y = -0.047x + 1.4281
R2 = 0.6078
-2.5
-2.0
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
0 10 20 30 40 50 60 70
Productivity
R2.23 The Commonwealth devotes a whole chapter and an Appendix in its
submissions to an attempt to demonstrate that there is a negative link
between award coverage and productivity. At the outset it is important to note
that even if this analysis were accepted the Commonwealth have not shown:
· that real unit labour costs in award dependent industries have not
GHFUHDVHG��ZKLFK�ZDV�WKH�$&78¶V�RULJLQDO�SURSRVLWLRQ� LQ� LWV�VXEPLVVLRQV��
ACTU Minimum Wages Case Reply Submission 2004 19 Chapter 2 ± Award Workers and Award Industries
or
· that Safety Net Increases prevent productivity improvement.
R2.24 At paragraph 4.52 the Commonwealth criticises the ACTU for deflating C14 by
CPI rather than price movements of the specific goods and services produced
by the three most award reliant industries. The Commonwealth then turns its
attention to movements in nominal wages instead. This is riddled with error.
In comparing nominal wages growth with productivity growth the
&RPPRQZHDOWK� LV� FRPSDULQJ� D� QRPLQDO� PHDVXUH� ZLWK� D� ³UHDO´� PHDVXUH� ±
productivity growth numbers are obtained by measuring real output and
dividing by number of hours worked to produce that output. Even if nominal
unit labour costs were a measure that had any intrinsic value the
Commonwealth simply have not properly calculated them.
R2.25 ,Q�IDFW��WKH�&RPPRQZHDOWK¶V�FDOFXODWLRQ�RI�³QRPLQDO�XQLW�RI�ODERXU�FRVWV´�LV�DQ�
indicator of its desperation to avoid making any concession regarding
improvements in productivity in award sectors. In its original submissions in
2003 at paragraph 8.37 the Commonwealth said that:
³,I employees and industries with lower productivity growth receive wage
increases based on high aggregate productivity growth then real unit labour costs
in the low end productivity industries will increase as a consequence. In the
present competitive environment, the rising real unit labour costs would manifest
DV�GLPLQLVKLQJ�SURILW�PDUJLQV«DQG�HPSOR\PHQW�>HPSKDVLV�DGGHG@�´
It was only when the ACTU pointed out that real unit labour costs had indeed
fallen in award dependent industries that the Commonwealth switched its
IRFXV�WR�³QRPLQDO´�XQLW�ODERXU�FRVWV�
R2.26 The use of CPI to deflate wage movements is a practice which the
Commonwealth itself utilises in its submissions: see Chart 3.4 and 2003
submissions Figures 3.2 and 3.3. In any event the ACTU has obtained
implicit price deflators for the three most award dependent industries for the
period 1996 to 2003 from the ABS National Accounts data. This allows a
comparison of the movements in real wages with movements in productivity
20 ACTU Minimum Wages Case Reply Submission Chapter 2 ± Award Workers and Award Industries
growth for the period (on the basis which in this instance the Commonwealth
asserts is appropriate) or alternatively a genuine comparison of nominal
wages growth with nominal labour costs growth. In each instance it can be
seen that unit labour costs have fallen in the three industries in the period.
R2.27 As Table R2.3 below shows in the Accommodation, cafes and restaurants and
Retail trade industries growth in the Federal Minimum Wage has been less
than growth in productivity whether measured on a real or nominal basis.
Whilst this is not the case for the Federal Minimum Wage in the Health and
Community Services sector it remains true if award only average hourly
ordinary time earnings for non-managerial employees in that sector are
considered. That is unit labour costs (whether real or nominal) in that industry
have fallen in the period 1996-2003.
Table R2.3: Award Reliant Industry Unit Labour Costs
Industry Real Increase Wages
Real Increase
Productivity
Nominal Increase Wages
Nominal Increase
Productivity Accommodation cafes and restaurants
9.4% 14.6% 28.3% 34.4%
Retail Trade 15.6% 16.6% 28.3% 29.4% Health and community services (1)
15.0% 9.1% 28.3% 21.7%
Health and community services (2)
5.3% 9.1% 17.4% 21.7%
Source: ABS Cat No. 5204.0 published and unpublished data.
1. ³5HDO´�ZDges deflated by implicit price deflators for total output for industry.
2. Nominal productivity calculated using implicit price deflators for total output for industry.
3. Accommodation, cafes and restaurants, Retail trade and Health and community services
(1) all use growth in the Federal Minimum W age ± real wages growth will actually be less
than this. Health and community services (2) uses non-managerial AHOTE for award
only employees from that industry (EEH May 2002 ABS Cat. No. 6306.0) and the
percentage increase in the weekly award rate equivalent to that rate of pay.
R2.28 On this basis there is simply no reason to conclude that Safety Net
Adjustments have had any negative impact on productivity growth in the three
most award dependent industries.
ACTU Minimum Wages Case Reply Submission 2004 21 Chapter 2 ± Award Workers and Award Industries
R2.29 In Appendix A of its submissions the Commonwealth conducts a series of
regression analysis aimed at establishing a negative linkage between
productivity performance and award coverage. This analysis is highly flawed.
R2.30 Two general points may be made regarding the CommRQZHDOWK¶V�DSSURDFK���
The first point to note is that statistical correlation does not imply causation. It
may for example be possible to get statistically significant relationships for a
given period between the productivity performance of an industry and the
number of letters in that industry name. Secondly the regressions regarding
productivity do not control for a range of factors such as the impact of
technology change or national competition policy. An analysis which attempts
to explain the increase in productivity in the communications sector without
paying any regard to these issues is hardly compelling.
R2.31 Professor W. Mitchell, Professor of Economics and Director, Centre of Full
Employment and Equity at the University of Newcastle has provided the
ACTU with a brief critique of the regression analysis used by the
Commonwealth. His observations are as follows:
(a) Unfortunately, diagnostics relating to the estimated residuals and
therefore the statistical validity of the models presented, are not reported
in any of the five models. It is not accurate to conclude that a model is
"robust" based on some value of the coefficient of determination (R2
value). The author(s) of Appendix A, repeatedly, to give an impression of
statistical authority, claim that "the diagnostic statistics show that this is a
robust model". The classic problem of spurious regression (where there
is no meaningful relationship at all) occurs in situations when the R-
squared values are close to unity (their maximum). Professional
econometricians do not readily rely on the R-squared value as a basis of
assessing the "robustness" of their models. This task is rather achieved
through the analysis of the residuals of each regression. This requires
reporting of diagnostic statistics pertaining to serial correlation,
heteroscedasticity, autoregressive conditional heteroscedasticity,
normality, general misspecification, within-sample stability, and
22 ACTU Minimum Wages Case Reply Submission Chapter 2 ± Award Workers and Award Industries
predictive failure to name the more significant tests that should be
conducted. The author(s) choose to adopt what I would consider to be
an "unprofessional" reporting practice by failing to fully disclose the
advanced diagnostics arising from their estimation. In that sense, there
is no way that a reader can conclude that the models are meaningful in
any way at all.
(b) Relatedly, one would have to have deep suspicions about some of the
results. Model A is based on 16 observations, Model B 89, Model C 7,
Model D 7 and Model E 11. Model B aside, no professional
econometrician would attempt to conduct inference on samples below 30
observations at least. The distributional properties of the estimates in
such small samples is basically unknown and so standard statistical
tests are unlikely to be of any guide or use.
(c) There is also a strange regard for some of the more recent
developments in time series econometrics. For example, in Model A we
have two variables that are in change form (over 2002-2000) and
another which is in level form as at 2000. The claim is that the level
variable is included to model declines in award coverage over time. We
might suspect that variable to be trending although without formal testing
we could not be sure whether this is trending deterministically or
stochastically, a difference that is not trifling for the validity of the
regression specification.
The change variables are most likely stationary and it would be a very
strange model that could mix stationary variables in change form with a
trending variable in level form. The fact that no discussion of the
underlying properties of any of the variables used is provided also
violates professional best practice and provides no sense of security
about any of the results generated.
(d) Points (b) and (c) would suggest that in the main, no inference can be
conducted using the results from the reported regressions. However,
even if those problems were addressed (an impossibility) a major
ACTU Minimum Wages Case Reply Submission 2004 23 Chapter 2 ± Award Workers and Award Industries
problem with the specifications is overlooked (seemingly ignored
completely) by the author(s). For the regression results to have validity,
there can be no simultaneity between the left hand side and right hand
side variables. This is referred to as the "endogeneity" problem and if it
occurs any regression estimates are unable to be used for reliable
inference.
Take Model C as an example. Here we have the change over 13 years
in productivity (with no clue of how it is measured) regressed on the %
point change in award coverage between 1990 and 2002 at the industry
level. A stunningly (and inappropriately) low 7 observations is used. The
author(s) conclude that "the results of the regression show that there is a
significant relationship between these two variables."
But which variable is driving which? In a fully specified model, of the type
that the author(s) would surely agree with, the two variables are jointly
determined. One cannot infer causality from the model presented
because there has not been adequate attention placed on the
endogeneity problem. No testing is reported to allay the fears of the
professional econometrician that the results are not biased in the
extreme. This problem is not confined to Model C. In fact, all the models
probably suffer from this deficiency and it is professional best practice to
conduct formal endogeneity tests and then use an Instrumental
Variables estimator to address the likely bias.
(e) There are other likely problems in the measurement of some of the
variables used. For example, in Models C and D, one of the explanatory
variables is the percentage point change in award coverage between
1990 and 2002. To be meaningful in any way the award coverage
definitions applying in both years would have to be commensurate. It is
my understanding, after consulting the relevant ABS definitions (Cat
6306.0 and Cat 6315.0), that this is not the case and the definitions of
award coverage differ markedly between start and end period used to
construct the percentage point change. This introduces measurement
errors into the analysis which are not considered by the author(s). How
24 ACTU Minimum Wages Case Reply Submission Chapter 2 ± Award Workers and Award Industries
have they dealt with that source of bias? Why is weighted least squares
suitable in this case? Professional best practice would suggest that
measurement error bias has to be dealt with explicitly in the estimation
process.
(f) Another source of measurement error arises in the sampling accuracy of
the underlying data itself. The ABS provided standard errors for the data
used and some simple computations indicate that the errors can be as
large as 25 per cent on this data. How can the author(s) assure us that
the "statistically significant" results allegedly found by them are not
spurious and driven by measurement errors in the data.
In summary, no professional econometrician would attempt to draw
inference from the regressions presented for the reasons presented
above. In the professional literature, this sort of analysis would be
rejected immediately as amateurish and in violation of professional
practice.
R2.32 Further to point (f) above Tables A.1 and A.2 present results of regressions
where the dependent variable is the change in award coverage between 2000
and 2002 as measured by the Employment Earnings and Hours surveys, ABS
Catalogue No. 6306.0. In the case of Table A.1 this is changes in award
coverage of full time and part time workers by industry and in the case of
Table A.2 changes in award coverage of full time workers by industry and
occupation. As the table below shows relative standard errors on change in
award coverage by industry are high. In all but cases greater than 25 per cent
and in all but cases greater than 50 per cent.
R2.33 It is not possible to isolate from the data supplied by the Commonwealth on
which 89 observations it relied for its analysis in Table A.2 but analysis of a
broader set of observations suggests that about three quarters of the
movement estimates on proportions of full-time award workers by industry and
by occupation have relative standard errors greater than 50 per cent.
ACTU Minimum Wages Case Reply Submission 2004 25 Chapter 2 ± Award Workers and Award Industries
Table R2.4: Standard Error on Movement in Award Only Proportions
May-02 May-00 Change
Level Estimate 2002
Movement estimate
RSE Movement estimate
**5.9 *5.9 0.0 3.8 5.3 N/a12.5 11.4 **1.1 1.2 1.7 152.7*1.1 *1.4 **-0.3 0.5 0.7 233.317.1 15.0 **2.1 2.9 4.1 193.311.7 12.1 **-0.4 1.4 2.0 490.034.2 34.9 **-0.7 1.8 2.5 360.061.2 64.7 **-3.5 1.8 2.5 72.016.4 18.4 **-2.0 2.3 3.2 161.0*2.4 *1.5 **0.9 0.9 1.3 140.0*4.9 5.6 **-0.7 2.2 3.1 440.018.1 20.7 **-2.6 1.7 2.4 91.5
6.0 15.3 -9.3 1.1 1.5 16.67.8 13.6 *-5.8 1.1 1.5 26.6
30.3 37.4 *-7.1 1.9 2.7 37.510.9 18.9 *-8.0 2.4 3.4 42.022.2 27.1 **-4.9 2.5 3.5 71.4
** estimate has a relative standard error greater than 50% and is considered to unreliable for general use* estimate has a relative standard error of between 25% and 50% and should be used with caution
Wholesale tradeRetail tradeAccommodation, cafes and restaurantsTransport and storage
Personal and other services
Communication servicesFinance and insuranceProperty and business servicesGovernment administration and defenceEducationHealth and community servicesCultural and recreational services
Electricity, gas and water supplyConstruction
Incidence of Award only Employees Standard Error
MiningManufacturing
Source: ABS Cat. No. 6306.0
R2.34 As noted in point (e) above Tables A.3 and A.4 conduct regression analysis
where an independent variable is the percentage point change in award
coverage 1990 to 2002. The definition of award coverage in the May 1990
publication on which the Commonwealth relies (ABS Cat. No.6315.0) is:
³covered by awards, deWHUPLQDWLRQV�DQG�FROOHFWLYH�DJUHHPHQWV´� Unpublished
data also allowed the identification of employees in receipt of overaward
SD\PHQWV���7KH�³FKDQJH´�LQ�DZDUG�FRYHUDJH�XWLOLVHG�E\�WKH�&RPPRQZHDOWK�LV�
the difference between award coverage less overaward employees as
measured in May 1990 and award only employees as measured in May 2002.
This is completely misleading as the persons covered by the award coverage
definition utilised by the Commonwealth for May 1990 would be found in the
award only category, the collective agreements category, and the individual
agreements category of the May 2002 survey. The May 1990 data is also
heavily influenced by the presence of significant paid rates awards which are
26 ACTU Minimum Wages Case Reply Submission Chapter 2 ± Award Workers and Award Industries
of an entirely different character to the vast bulk of awards underpinning the
May 2002 data.
R2.35 In summary then despite the extensive efforts of the Commonwealth in this
UHJDUG� QRWKLQJ� LV� GHPRQVWUDWHG� LQ� WKH� &RPPRQZHDOWK¶V� VXEPLVVLRQV� ZKLFK�
ZRXOG�ZHDNHQ�WKH�IRUFH�RI�WKH�$&78¶V�SURSRVLWLRQ�WKDW�UHDO�XQLW� ODERXU costs
have declined in the three most award dependent industries over the period of
6DIHW\� 1HW� $GMXVWPHQWV� RU� WKH� &RPPLVVLRQ¶V� FRQFOXVLRQ� LQ� LWV� GHFLVLRQ� ODVW�
year that there is no necessary association between award coverage, Safety
Net Increases and productivity growth.
Award Workers
R2.36 No party disputes the evidence presented by the ACTU at paragraphs 2.16 to
2.19 that award only workers are paid less than others in the community. The
positions of the Commonwealth and employer groups in this Case would
result in the real wages of all award workers being cut.
R2.37 ACCI misconstrue the unpublished Employee Earnings and Hours Adjusted
Weekly Time Earnings data. As the headings to the ABS data indicate, that
data refers to all adults whether employed full time or part time and self
evidently (from the heading to the Table) applies to casual employees. The
purpose of providing weekly total earnings for all employees is to give an
indication of the actual weekly wage earned by award only employees. The
data alsR�VKRZV�WKH�DEVXUGLW\�RI�$&&,¶V�FRQVWDQW�DQG�UHSHWLWLYH�UHIHUHQFH�WR�
award only employees earning more than $1,000 per week. Only 3 per cent
of the award only workforce have earnings of this amount.
R2.38 At paragraph 6.53 ACCI rely on the Adjusted Weekly Total Earnings data to
calculate the percentage of award employees who earn less than the trade
rate. This is disingenuous. ACCI were also provided with adjusted Average
Hourly Ordinary Time Earnings data which provides a proper basis for this
calculation. This data shows 40 per cent of award only employees receive
less than the trades rate (as at 2002).
ACTU Minimum Wages Case Reply Submission 2004 27 Chapter 2 ± Award Workers and Award Industries
R2.39 No party disputes that average increases for award workers last year were
less than movements in all other key wage measures nor that in every year
but 2002 the average increase in award rates has been less than the average
movement in the Wage Cost Index for June 1999 to June 2003. The
Commonwealth criticises the ACTU for comparing average increases for
award only employees with average increases for others in the community. It
says that this does not take sufficient account of dispersion in wage
outcomes.
R2.40 The Commonwealth relies on data regarding wage outcomes under Federal
Certified Agreements current as at September quarter 2003 to show that
substantial numbers of employees under those agreements received wage
increases of 3 per cent or less. This is so, however it is also apparent from
the data that more substantial numbers of employees under Federal
agreements received wage outcomes of 4 per cent or greater. The
corresponding picture for award only employees is worse. No award
employee received a wage increase of 4 per cent or greater (as a result of last
\HDU¶V�6DIHW\�1HW�$GMXVWPHQW�WKH�LQFUHDVH�LQ�WKH�)HGHUDO�0LQLPXP�:DJH�ZDV�
less than 4 per cent) and based on EEH adjusted AHOTE data approximately
49 per cent of all award only employees received an increase of 3 per cent or
less compared to the much lower proportion on Federal Certified Agreements.
Thus even when the focus moves way from average outcomes to dispersed
RXWFRPHV� WKH� $&78¶V� SURSRVLWLRQ� WKDW� DZDUG� RQO\� ZRUNHUV� KDYH� JHQHUDOO\�
fared worse than the rest of the community holds.
R2.41 The Commonwealth also relies for its contention in this regard on dispersion
in industry average annualised growth rates in the Wage Cost Index. Tellingly
WKHVH� GDWD� SURYLGH� IXUWKHU� FRQILUPDWLRQ� IRU� WKH� $&78¶V� SURSRVLWLRQ� ZLWK� WKH�
two most award dependent industries, Retail trade and Accommodation, cafes
and restaurants recording the lowest outcomes. As we noted in our original
submissions the same is true if the focus shifts to movements in the Wage
Cost Index for occupations. The most recent data indicating that, over the life
of the Wage Cost Index, Elementary clerical sales and service workers, where
28 ACTU Minimum Wages Case Reply Submission Chapter 2 ± Award Workers and Award Industries
the award only concentration is more than 40 per cent, have had the lowest
increase in their wage rates of any occupational group.
R2.42 The Commonwealth also relies on distribution of employment by full time
wage by method of pay setting data. In two of the three instances that data
shows that even within the particular industry (Retail trade or Health and
community services) award workers are significantly lower paid than their
collective or individual agreement counterparts.
R2.43 In Chart 3.5 the Commonwealth compares movements in the Federal
Minimum Wage, C10 and the Wage Cost Index. As is evident from that chart
movements in C10 have broadly tracked movements in the Wage Cost Index
since September 1997. If the Wage Cost Index remains at its current level of
3.7 per cent (seasonally adjusted) a $20 increase in C10 would be necessary
for the movement in that wage rate to keep pace with the Wage Cost Index.
,Q�IDFW��WKH�$&78¶V�HYLGHQFH�UHJDUGLQJ�QHHGV�RI�WKH�ORZ�SDLG�VKRZV�WKH�FDVH�
for increases in lower award rates of pay substantially beyond movements in
the Wage Cost Index.
R2.44 1R�SDUW\�GLVSXWHV�WKH�$&78¶V�DQDO\VLV�RI�WKH�PRYHPHQW�LQ�UHDO�DIWHU�WD[�ZDJH�
rates for the classifications C14 through to C10. As the ACTU indicated in its
original submissions the real after tax wage for C14 has barely increased
since 1999 and wage rates for C11 and C10 are currently worth less in real
terms after tax than they were in June 1999. Interestingly the
&RPPRQZHDOWK¶V�&KDUW�����VKRZV�HVVHQWLDOO\� WKH�VDPH�SLFWXUH� LQ� UHODWLRQ� WR�
the before tax Federal Minimum Wage for the same period. It is noteworthy
that the Commonwealth focuses on the increase in real value of the Federal
Minimum Wage since 1990 rather than a more recent period.
ACTU Minimum Wages Case Reply Submission 2004 29 Chapter 2 ± Award Workers and Award Industries
Conclusion
R2.45 Nothing in the analysis of the opposing submission provides any basis for a
departure from the conclusion for which the ACTU contended in its original
submissions. That is that award workers have contributed their fair share to
$XVWUDOLD¶V�JURZWK� LQ�SURGXFWLYLW\�EXW�GHVHUYH�D�EHWWHU�VKDUH� LQ� WHUPV of their
wages.
30 ACTU Minimum Wages Case Reply Submission Chapter 2 ± Award Workers and Award Industries
ACTU Minimum Wages Case Reply Submission 2004 31 Chapter 3 ± Wages Update
R3 Wages Update
Introduction
R3.1 Since the ACTU submitted its original submission a range of new ABS data
has been released showing wage movements.
Table R3.1: Annual percentage increases in key wage movements.
AW OTE AW E
AW E (total earnings) WCI AENA
Original Submission 6.1 6.2 5.4 3.6 3.5
Reply submission 5.7 6.1 5.6 3.6 3.6 Source: ACTU National Wage Case W ritten Submission, 28 January 2004, ABS Cat. Nos., 6302.0, 6345.0 & 5206.0
R3.2 As it can be seen from Table 3.1 the new data shows a similar picture to that
SUHVHQWHG�LQ�WKH�$&78¶V�RULJLQDO�VXEPLVVLRQ���7KLV�GDWD�FRQILUPV�RXU�RULJLQDO�
submission that the rest of the community has fared better than award only
workers as each of the key wage movements have recorded a higher annual
percentage increase than that received by award only workers, who received
an annual increase of 3.1 per cent as a result of last years decision.
Average weekly earnings
R3.3 Table 12 of the ACTU Reply Composite Exhibit contains the most up to date
Average Weekly Earnings data, released on 28 February 2004 for the
November quarter 2003.
R3.4 The Average Weekly Ordinary Time Earnings (AWOTE) measure for full-time
adult employees increased by 1.1 per cent during the November quarter 2003,
this is a fall of 0.2 percentage points from the August quarter 2003. Over the
year to November 2003 AWOTE has increased by 5.7 per cent.
R3.5 The Average Weekly Total Earnings (AWE) for full-time adults total earnings
increased by 1.3 per cent for the November quarter. This represents a
32 ACTU Minimum Wages Case Reply Submission Chapter 3 ± Wages Update
slowing of 0.2 percentage points from the August 2003 quarter and a 6.1 per
cent increase over the year to November 2003.
R3.6 Growth in Average Weekly Total Earnings (AWE total earnings) for all
employees was in line with AWE at 1.3 per cent for the November 2003
quarter; this represents an increase of 5.6 per cent for the year to November
2003.
Wage Cost Index (WCI)
R3.7 ACCI go to great lengths in their submission to stress that the original series
movement in the WCI should be used in regards to any consideration of the
effects of SNA on wage costs. However, the SNA is not the only seasonal
effect on wages as the ABS points out:
Important factors determining the seasonality of the WCI are the timing of effect
of Australian workplace agreements and certified agreements, the length of these
agreements, and the timing of significant centralised wage hearings that impact
RQ� DZDUG� UDWHV� RI� SD\� VXFK� DV� WKH� ³6DIHW\� 1HW� 5HYLHZ´� FRQGXFWHG� E\� WKH�
Australian Industrial Commission.
[ABS Cat. No. 6345.0 W age Cost Index, page 22]
R3.8 As the ACTU noted in its original submissions a large number of federal
enterprise agreements are negotiated during the September quarter and it
would be difficult to differentiate the impact that each of the separate methods
of pay setting would have on the WCI figures. Hence the importance of the
seasonally adjusted and trend series.
R3.9 Growth in the WCI has been steady at approximately 0.9 per cent for the past
eight quarters to December 2003 and a moderate 3.6 per cent increase for the
year to December 2003.
ACTU Minimum Wages Case Reply Submission 2004 33 Chapter 3 ± Wages Update
R3.10 After the release of the WCI figures economists had the following to say:
³*LYHQ� WKH� SURJUHVVLYH� WLJKWHQLQJ� LQ� WKH� ODERXU�PDUNHW� RYHU� WKH� ODVW� ���PRQWKV��
wage and labour costs currently remain relatively well behaved at an aggregate
level,´
³$W� LWV� FXUUHQW� DQQXDO� SDFH�� WKH� ZDJH� FRVW� LQGH[� UHPDLQV� ILUPO\� LQ� WKH� 5HVHUYH�
%DQN�RI�$XVWUDOLD¶V�FRPIRUW�]RQH�LQ�WHUPV�RI�ZDJHV�JURZWK�´
Su-lin Ong, Senior Economist, RBC Capital Markets
[www.theage.com.au, W age growth remains in check: economists, 25 February 2004]
and
³7KH�ZDJH�FRVW� LQGH[�ZDV�QRW�VXIILFLHQWO\�KLJK� LQ�RXU�YLHZ�WR�EULQJ�IRUZDUG�D�ULVH�
LQ�RIILFLDO�LQWHUHVW�UDWHV�DW�QH[W�ZHHN¶V�5%$�ERDUG�PHHWLQJ�´�
Stephen Halmarick, Director economic and market analysis Citigroup,
[The Australian Financial Review, W age rises put focus on rates, 26 February 2004, page 5]
Average Earnings on a National Accounts Basis (AENA)
R3.11 Average non-farm compensation per employee, as measured in the ABS
quarterly National Accounts, increased by 0.9 per cent during the December
quarter 2003, to be 3.6 per cent higher than at the same time last year.
Management and Executive Remuneration
R3.12 $&&,�HQFORVHV� LWV�&KDSWHU�RQ�H[HFXWLYH�VDODULHV� IURP� ODVW�\HDU¶V�ZDJH�FDVH�
as an appendix to its submissions.
R3.13 Chapter 3 of the ACTU submission of 28 January 2004 provides information
on pay increases for different methods of pay settings and wage movements
generally in the community. Management and executive remuneration is just
one area of wages growth given consideration. The material assists the
&RPPLVVLRQ� LQ� DVVHVVLQJ� WKH� ³OLYLQJ� VWDQGDUGV� JHQHUDOO\� SUHYDLOLQJ� LQ� WKH�
$XVWUDOLDQ�FRPPXQLW\´�
34 ACTU Minimum Wages Case Reply Submission Chapter 3 ± Wages Update
ACTU Minimum Wages Case Reply Submission 2004 35 Chapter 4 ± The ACTU Claim is Moderate
R4 The ACTU Claim is Moderate
R4.1 In its original submissions the ACTU contended for four key propositions
regarding the moderateness of its claim:
· That it will have a negligible impact on aggregate earnings of 0.1 per cent;
· That it provides an average increase for full time award workers of 4.5 per
cent and an average increase for all award workers of 4.7 per cent;
· That it will result in an average increase for award workers in the five year
period 2000 to 2004 (inclusive) of 3.4 per cent, the same as the average
annual increase in the Wage Cost Index for the period June 1999 to June
2003; and
· That the claim will provide a real increase improving the real value of the
after tax wage income of the lowest paid.
R4.2 No opposing party provides any evidence disputing any of these claims.
Costing the Claim
R4.3 No other party in these proceedings provides a genuine macroeconomic
costing of the ACTU claim. Of particular significance is the complete
abandonment by the Commonwealth of any such costing. In recent years it
KDV� EHFRPH� DSSDUHQW� WKDW� WKH� &RPPRQZHDOWK¶V� PDFURHFRQRPLF� FRVWLQJ�
(subject to its failure to adjust for safety net flow) essentially produces the
same result as that of the ACTU and its macroeconomic modelling of the net
cost of the ACTU claim has produced a negligible impact on growth, inflation,
employment and unemployment. The fact that the Commonwealth does not
produce a macroeconomic costing in these proceedings is, in effect, a tacit
admission that the macroeconomic impact of the ACTU claim is as the ACTU
says it is.
36 ACTU Minimum Wages Case Reply Submission Chapter 4 ± The ACTU Claim is Moderate
R4.4 1R�SDUW\�LQ�LWV�RSSRVLQJ�VXEPLVVLRQV�GLVSXWHV�WKH�$&78¶V�FRPSDULVRQ�RI�WKH�
gross and net impact of its claim with the corresponding impact for the
combined effect of the Safety Net Adjustment and Superannuation Guarantee
Contribution increase in 2000 and 2002. As the ACTU submitted in its original
submissions the comparability of the ACTU claim and the combined effect of
the SGC and SNA in the years 2000 and 2002 is particularly significant in light
RI�WKH�&RPPLVVLRQ¶V�ILQGLQJ�WKDW�WKH������6DIHW\�1HW�,QFUHDVH�KDG�QR�DGYHUVH�
aggregate economic impact.
R4.5 Once again ACCI purport to cost the impact of the ACTU claim on the private
sector and provide only a gross estimate of their calculated impact. As the
Commission concluded last year:
³$V�VXFK�� >WKH�$&&,�FRVWLQJ@�GRHV�QRW�SURYLGH�DQ�HFRQRP\�ZLGH�HVWLPDWH�RI� WKH�
DGGLWLRQ�WR�ZDJHV�FRVWV�UHVXOWLQJ�IURP�WKH�$&78¶V�FODLP´�
See: Safety Net Review Wages 2003 PR002003 at 116
R4.6 7KH�$&&,� FRVWLQJ�RI� WKH� LQGLUHFW� ³IORZ�RQ�HIIHFW´� RI� WKH�$&78�FODLP� LV�HYHQ�
more problematic. Whilst ACCI have endeavoured to circumvent some of the
criticisms of their earlier costings which provided no indication of the
proportion of employees who allegedly received a Safety Net Increase it is
DSSDUHQW� WKDW� WKH�$&&,¶V� QHZ�PHWKRGRORJ\� XOWLPDWHO\� VXIIHUV� IURP�SUHFLVHO\�
the same defect. The ACCI survey asked employers who passed on the
Safety Net Increase to estimate the proportion of their employees who
received the Safety Net Increase indirectly but the ACCI methodology
SURYLGHV�QR�PHFKDQLVP�IRU�ZHLJKWLQJ�WKHVH�UHVSRQVHV�E\�WKH�LQGLYLGXDO�ILUP¶V�
proportion of total employment. In effect, a firm with two employees has the
same weighting, so far as employment effects are concerned, as a firm with
1,000 employees. More recently ACCI has supplied the ACTU with
³ZHLJKWHG´� VXUYH\� UHVXOWV�� � 7KLV�ZHLJKWLQJ� GRHV� QRW� FLUFXPYHQW� WKH� SUREOHP�
which the ACTU identifies. The below illustration shows the dangers of relying
on proportion of firms for the calculation of employment effects.
ACTU Minimum Wages Case Reply Submission 2004 37 Chapter 4 ± The ACTU Claim is Moderate
R4.7 Suppose there are only two firms in the survey, one with two employees both
of whom indirectly receive the Safety Net Increases flow on and the other with
998 employees, none of whom receive the Safety Net Increases as flow on.
The true proportion of employees who received the Safety Net Increase
indirectly as flow on is 0.2 per cent but the ACCI calculation, as shown in the
table below, provides a proportion of employees receiving the Safety Net
Increase as 50 per cent. This is because the ACCI have weighted by
proportion of firms rather than proportion of total employment.
Table R4.1: The Fallacy Underlying Table 4 of ACCI ± Chapter 10
Proportion of Employees who Received the Safety Net Increase indirectly as a flow on
Proportion of firms who passed on the Safety Net
Increase
Proportion of employees receiving Safety Net Increase (weighted)
0 50.0 0.0 1-25 0 0.0 26-50 0 0.0 51-75 0 0.0 76-99 0 0.0 100 50.0 50.0 Total 50.0
R4.8 7KH� $&78¶V� H[DPSOH� LV� QRW� PHUHO\� D� WKHRUHWLFDO� SUREOHP�� � 7KH� VNHZHG�
distribution of employment by firm size is well known. For example, ABS data
shows that whilst small businesses (employing less than 20 employees)
account for more than 90 per cent of businesses, their proportion of
employment is less than 50 per cent.
R4.9 Further, the ACCI submission itself demonstrates the flaws inherent in its
methodology. Using the same methodology as ACCI uses to calculate the
proportion of employees who received the Safety Net Increase indirectly the
proportion of employees receiving the Safety Net Increase directly can be
calculated. As the table below shows this calculation provides an estimate of
employees receiving the safety net directly which is wildly different from the
24.6 per cent of private sector employees revealed by the ABS Employee
Earnings and Hours Survey.
38 ACTU Minimum Wages Case Reply Submission Chapter 4 ± The ACTU Claim is Moderate
7DEOH�5�����8VLQJ�$&&,¶V�PHWKRGRORJ\�WR�FDOFXODWH�WKH�SURSRUWLRQ�of employees who receive an increase in wages as a direct result of the Safety Net decision
Proportion of Employees who Received the Safety Net Increase directly
Proportion of firms who passed on the Safety Net
Increase
Proportion of employees receiving Safety Net Increase (weighted)
0 42.1 0.00 1-25 8.3 1.04 11.0 7.6 2.85 51-75 11.0 6.88 76-99 12.8 11.20 100 18.3 18.30 Total 40.27
R4.10 In short, whilst the ACCI has attempted to rectify the defects of its costing it
has still failed to weight appropriately for employment numbers rather than
firm numbers. This fundamental flaw stands quite apart from any criticisms of
the survey methodology itself which are dealt with in Chapter 6 of these
submissions.
R4.11 After ACCI had filed its materials the ACTU asked it to provide further
information regarding its survey results. One request was for confirmation
that its survey results were unweighted. On 3 March 2004 ACCI responded to
this request by confirming that its original data was unweighted but then
SURGXFLQJ�QHZ�³ZHLJKWHG´�GDWD�
R4.12 In no sense was this weighting process unavailable to ACCI before the filing
date for its submissions ±� LQGHHG� $&&,� DGYLVHG� WKH� $&78� WKDW� LW� KDGQ¶W�
thought to weight the data until the ACTU enquired whether it was.
R4.13 7KH�QHZ�³ZHLJKWHG´�GDWD�LV�QR�EHWWHU�WKDQ�WKH�XQZHLJhted data. According to
ACCI the weighting is not by reference to the proportion of employment of
individual respondents in the total sample but rather by reference to the
concentration of award only employees in particular industry sectors. This
process is bizarre and has no cogent mathematical underpinnings. A normal
weighting process would require proportions to have the same denominator
and sum to 100 per cent. The concentrations of award only employees have
different denominators and as a result doQ¶W�VXP�WR�DQ\WKLQJ�OLNH�����SHU�FHQW�
ACTU Minimum Wages Case Reply Submission 2004 39 Chapter 4 ± The ACTU Claim is Moderate
The Level of Increase for Award Workers
R4.14 No party disputes the material advanced by the ACTU in its original
submissions regarding the quantum of the average increase for award
workers and the increase in selected Metal Industry Award classification rates
as a result of the ACTU claim.
R4.15 The Commonwealth, in its submissions, states that the only appropriate
comparator is movements in award wages with the Wage Cost Index. As the
ACTU has stated previously the Wage Cost Index is an appropriate
comparator when considering the impact of the ACTU claim on wage costs
but comparisons with earnings measures are appropriate when a
consideration of living standards is apposite.
R4.16 The only other relevant matter in this regard is tKH� &RPPRQZHDOWK¶V�
submission that the level of increase in the ACTU claim will result in a
disincentive to bargain. In this regard the following points may be made:
· Chart 3.6 and the regressions in Table A.1 and A.2 regarding the
relationship between changes in wages and changes in award coverage
are devoid of merit. To the extent that changes in award coverage show
anything they show, there is no disincentive to bargain;
· Charts 3.10 and 3.11 actually show that past Safety Net Increases have
meant that generally speaking the Federal Minimum Wage has increased
by less than average annualised wage increases for employees under
agreements and C10 has increased by percentage increases not much
above the lower quartile increases for average annualised wage increases
under Federal Wage Agreements. Note in this respect this is a
comparison of percentage increases and tells us nothing regarding actual
dollar amounts;
40 ACTU Minimum Wages Case Reply Submission Chapter 4 ± The ACTU Claim is Moderate
· The Commonwealth does not and cannot assert that past Safety Net
Adjustments have had any demonstrable impact on the spread of
bargaining.
R4.17 In Chapter 9 of its submissions Ai Group characterise the ACTU claim as
H[FHVVLYH�� �7KLV�FKDSWHU�DPRXQWV� WR� OLWWOH�PRUH� WKDQ�D� UHKDVK�RI�$L�*URXS¶V�
economic arguments in this Case and provides no analysis of the increase
sought by the ACTU in terms of its macroeconomic impact, its average
increase for award workers or the increase for selected Metal Industry
classifications.
Conclusion
R4.18 The opposing submissions provide no basis for a departure from the central
conclusions for which the ACTU contended in its original submissions. The
ACTU claim is moderate.
ACTU Minimum Wages Case Reply Submission 2004 41 Chapter 5 ± Economic Conditions and Outlook
R5 Economic Conditions and Prospects1
R5.1 All recent economic data points to a strong and robust economy with the near
and medium term outlook continuing to be positive. In the last 6 months the
annualised rate of growth has exceeded 5%, profits and productivity remain
high, prices and wages growth is contained and strong employment growth
has seen unemployment hover around 22 year lows. Even before the release
of the December National Accounts ACCI and the Commonwealth
acknowledged in their submissions that economic conditions are better than
they were twelve months ago. ACCI went on to say at paragraph 3.4 that
³Looking forward we see the prospect for better times´�
R5.2 In January 2004, ACCI had the following to say about the state of the
Australian economy:
The Australian economy is a phenomenon. Over the past year it has been the
strongest economy in the entire developed world. It has continued to succeed in
spite of what may have been the most severe drought of the past hundred years,
in spite of a protracted international downturn, in spite of having high real interest
rates and in spite of the rising value of the dollar.
The Australian economy, in spite of everything, has simply continued to grow.
Investment expectations, although much lower than last year, remain positive.
The unemployment rate has fallen below six per cent for the first time more than
a decade. Inflation remains well contained. Real earnings continue to rise.
[ACCI, Keeping the Economy on Track, ACCI Review No. 107]
R5.3 This assessment of current economic circumstances and outlook makes all
the more bizarre the positions for which employer groups and the
Commonwealth contend in this Case. PaWHQWO\� ODVW� \HDU¶V� VDIHW\� QHW�
adjustment has had no adverse impact on aggregate data, it is accepted that
this year the economy is stronger than last year and that looking forward
things are likely to get better and yet employer groups and the Commonwealth
1 As in earlier submissions, the figures referred to in this chapter are trend numbers, unless otherwise specified. A more complete update of most of the relevant data has been supplied at Tag 1 of the ACTU Reply Composite Exhibit.
42 ACTU Minimum Wages Case Reply Submission Chapter 5 ± Economic Conditions and Outlook
contend in these proceedings for amounts substantially below those awarded
LQ�ODVW�\HDU¶V�&DVH�
Economic Growth
R5.4 The December quarter 2003 National Accounts figures were released by the
$%6� RQ� �� 0DUFK� ������ � 7KH� GDWD� FRQILUPV� WKDW� $XVWUDOLD¶V� HFRQRPLF�
conditions continue to prosper and that factors such as SARS and the drought
have now abated.
R5.5 The results show that the economy grew by a very healthy 1.4 per cent
seasonally adjusted (1.1 per cent trend) for the quarter and a very solid 4.0
per cent seasonally adjusted over the year (3.5 per cent trend), largely
reflecting growth in domestic consumption and strong growth in the rural
sector.
R5.6 Abstracting from the volatility of the farm sector, the non-farm GDP grew by
0.8 per cent for the December 2003 quarter to be 3.0 per cent higher over the
year.
R5.7 At paragraph 3.19 ACCI refer to a downward trend in growth in the market
sector. Recent National Accounts data shows growth in that sector on an
upward trend since March 2003. GDP for the market sector grew by 3.8 per
cent for the year to December 2003.
ACTU Minimum Wages Case Reply Submission 2004 43 Chapter 5 ± Economic Conditions and Outlook
Table R5.1: Agricultural Production, Chain volume measures (a): Seasonally Adjusted
Source: ABS Cat. No. 6305.0
R5.8 Table 5.1 shows the actual and projected values of agricultural production
from September quarter 2002 to June quarter 2003 in seasonally adjusted
terms. It can be seen from Table 5.1 that agricultural production fell to a low
of $4557m in the March quarter 2003 before it started to rise again. In the
December quarter 2003 agricultural production rose to $6089m which is 31.7
per cent higher than at the same time a year ago. The increase in agricultural
production is forecast to continue and by June 2003 it is expected to increase
to $6165m which equates to an increase of 30.7 per cent for the year.
Aggregate Demand
R5.9 Strong final domestic demand has continued to underpin the Australian
economy in the December quarter 2003, increasing by 1.9 per cent during the
quarter to be 6.7 per cent higher over the year to December 2003.
Private Consumption
R5.10 The December quarter National Accounts showed that private domestic
consumption increased by 1.6 per cent for the quarter to be 5.4 per cent
higher over the year to December 2003.
2002-03 2003-04 Sep Dec Mar Jun Sep Dec Mar(b) Jun(b) $m $m $m $m $m $m $m $m Outputs 9,668 8,300 8,203 8,410 9,249 10,354 10,294 10,339 less inputs 4,008 3,677 3,646 3,692 3,873 4,265 4,185 4,174 Gross agricultural product at market prices 5,660 4,623 4,557 4,718 5,376 6,089 6,109 6,165 Gross domestic product 182,704 182,920 184,519 185,164 187,663 190,200 na na Notes: na Not available (a) Reference year for chain volume measure is 2001-02 (b) Projections based on ABARE forecasts
44 ACTU Minimum Wages Case Reply Submission Chapter 5 ± Economic Conditions and Outlook
R5.11 Further, retail turnover recorded (as recorded in ABS Cat. No. 8501.0)
increases of 0.6 and 0.5 per cent for the months of December 2003 and
January 2004 respectively. Over the past 12 months (January 2003 to
January 2004) retail sales grew by 8.8 per cent and motor vehicle sales (as
recorded by ABS Cat. No. 9314.0) have increased by 6.4 per cent.
R5.12 More detail on the recent changes to retail trade and motor vehicle sales can
be found in Tag 1 of the ACTU Reply Composite Exhibit.
Private Investment Expenditure
R5.13 Private domestic investment continues its strong growth in the December
quarter 2003; with an increase of 2.9 per cent for the quarter bringing the
growth for the year to December 2003 to 10.4 per cent.
The Housing Sector
R5.14 Private dwelling expenditure grew by 2.6 per cent during the December
quarter 2003 and 5.6 per cent for the year.
R5.15 During the month of December 2003 the value of lending for new dwelling
approvals grew by 2.3 per cent, while the number of new dwelling approvals
fell by 2 per cent.
Business Investment
R5.16 Private business investment increased strongly during the December quarter
2003, up 3.3 per cent for the quarter. On a yearly basis, business expenditure
increased by 13.6 per cent.
ACTU Minimum Wages Case Reply Submission 2004 45 Chapter 5 ± Economic Conditions and Outlook
R5.17 Private business expenditure was supported by new engineering construction,
(up 13.6 per cent over the year), machinery and equipment (up 15.7 per cent),
and livestock, (up 63.4 per cent) to December 2003.
Business Sector
Company Profits
R5.18 Company profits have continued to grow strongly over the December quarter
2003. The company profits before tax measure from the ABS Business
Indicator publication (Cat. No. 5676.0) rose by 6.3 per cent over the
December quarter 2003 to be 27.5 per cent higher over the year to December
2003.
R5.19 The GOS measure of company profits, as measured by the ABS National
Accounts (Cat. No. 5206.0) rose by 2.3 per cent during the December quarter
2003 to be 8.1 per cent higher over the year.
R5.20 Both the Commonwealth and ACCI assert in their submissions that focussing
on the GOS share is misleading and that a better measure of profits is GOS
together with gross mixed income. We have shown in Chapter 2 of our
submissions that this is wrong. Conceptually gross mixed income comprises
both returns to capital and returns to labour (hence its name). Neither ABS or
the Treasurer appear to use the measure which the Commonwealth and ACCI
favour in these proceedings.
R5.21 &OHDUO\�ODVW�\HDU¶V�GHFLVLRQ�E\�WKH�&RPPLVVLRQ�WR�DZDUG�����KDV�QRW�UHVXOWHG�
in a halt to the continued strong growth in company profitability.
Employment
R5.22 Australia's labour force figures continue to show strong jobs growth. The
latest employment figures (as reported in ABS Cat. No. 6202.0) show that
46 ACTU Minimum Wages Case Reply Submission Chapter 5 ± Economic Conditions and Outlook
23,100 jobs were created during the month of January 2004 with 18,100 of
these being full-time.
R5.23 On a yearly basis, the number of total employees has increased by 1.8 per
cent to January 2004, this equates to 168,000 new jobs created over the year.
The number of people in full-time positions has increased by 2.3 per cent to
January 2004 to 156,600; therefore over 90 per cent of all new employment
over the year to January 2004 has been full-time.
R5.24 The unemployment rate has remained below 6.0 per cent for the last six
months. As at January 2004, the unemployment rate is 5.6 per cent.
R5.25 Once again at paragraph 3.31 ACCI refer to hours worked data for the market
sector on the basis that this approximates the private sector. As the ACTU
demonstrated last year reliance on market sector data is of little assistance.
The private sector accounts for more than 80 per cent of total employees
whilst the market sector only accounts for about 60 per cent of all employees.
The market sector excludes about 40 per cent of award only employees.
R5.26 7KHUH�LV�VLPSO\�QRWKLQJ�WR�VXJJHVW�WKDW�ODVW�\HDU¶V�61$�KDV�KDG�DQ\�HIIHFW�RQ�
employment growth.
Wages
R5.27 Wages growth remains moderate according to the most recent data released
since the ACTU lodged its original submissions. A more detailed analysis of
the recent data has been provided in Chapter 3 of this Reply Submission.
Inflation
R5.28 The December quarter 2003 figures for the Consumer Price Index were
released on 28 January 2004. The all groups index rose by 2.4 percent for
the year to December 2003, which is down from 3.0 per cent for the year to
'HFHPEHU������DQG�LV�ZHOO�ZLWKLQ�WKH�5%$¶s target range.
ACTU Minimum Wages Case Reply Submission 2004 47 Chapter 5 ± Economic Conditions and Outlook
R5.29 Thus, the Australian economy has continued to grow simultaneously with a
slowing in the rate of increase in prices over the last twelve months. There is
evidence that this will continue; the RBA believes inflation could fall as low as
�ò�SHU�FHQW�DQG�WKHQ�UHWXUQ�WR��ò�SHU�FHQW� LQ������>VHH�5%$�6WDWHPHQW�RQ�
Monetary Policy, February 2004].
R5.30 Peter Hendy, Chief Executive of ACCI had the following to say on the current
inflationary environment:
The RBA, in its Statement on Monetary Policy released today, has confirmed that
the Australian economy is in the midst of a period of sustainable non-inflationary
growth.
«
7KH� %DQN� H[SHFWV� LQIODWLRQ� WR� IDOO� WR� �ò�� EHIRUH� ULVLQJ� DJDLQ�� DQG� ZKDWHYHU�
acceleration in the inflation rate there may be will tend to be slow. It will not be
XQWLO� ����� WKDW� WKH�5%$�H[SHFWV� WKH� LQIODWLRQ� UDWH� WR� DJDLQ� UHDFK� �� WKH�PLG-
point of its target range.
[ACCI media Release, No Further Rate Rises Needed, Statement by Peter Hendy, Chief Executive, 9 February 2004]
R5.31 ACCI also assert that the inflationary pressures of any SNA on the non-
tradeable component of CPI will cause the RBA to raise interest rates.
However, in an ACCI Media Release Peter Hendy (ACCI Chief Executive) had
the following to say:
With the economy maintaiQ LQJ� DQG� EXLOGLQJ� RQ� ODVW� \HDU¶V� PRPHQWXP� WKH�
Reserve Bank has made the correct decision not to constrain growth through an
unnecessary increase in interest rates. Current economic growth appears
sustainable. Wage pressures, while building, do not represent a serious risk to
price stability in the medium term.
[ACCI, National Survey of Business Expectations Economic Growth W ithout Need to Raise Rates, Media Release 4 February 2004]
48 ACTU Minimum Wages Case Reply Submission Chapter 5 ± Economic Conditions and Outlook
Productivity
R5.32 Growth in labour productivity has increased over the twelve months to
December 2003. GDP per hour worked grew by 2.3 per cent for the year and
GDP per hour worked market sector grew at a much better rate of 3.3 per cent
for the year to September 2003.
R5.33 The Commonwealth and employer groups support an increase of 2.2 per cent
at the C14 classification level. Percentage increases in all other award wage
rates supported by the Commonwealth and employer groups are, of course,
correspondingly less. This is a remarkable position to take given that the
Treasurer has previously remarked that in similar circumstances (a low
inflationary economy and increases in productivity) a 4 per cent increase in
wages is affordable.
I have consistently said that in a low inflationary economy, if your inflation is in the
WZRV��DQG�\RX¶ve got a productivity improvement of a round two percent, you can
afford wages outcomes of about four percent.
[Treasurer Peter Costello, Press conference, 7 September 2000]
International Economy
R5.34 $&&,� FODLP� LQ� SDUDJUDSK� ����� RI� WKHLU� VXEPLVVLRQ� WKDW� ³WKe international
UHFHVVLRQ� «� UHPDLQV� DQ� LPSRUWDQW� REVWDFOH� WR� $XVWUDOLDQ� H[SRUW� GHPDQG´���
However, only ACCI appear to hold the belief we are in the midst of an
international recession.
R5.35 For example in December 2003 the OECD had the following to say on the
world economy:
ACTU Minimum Wages Case Reply Submission 2004 49 Chapter 5 ± Economic Conditions and Outlook
After a drawn-out period of fits and starts, a palpable recovery has taken hold
across the OECD. The strong momentum already achieved in Asia, North
America and the United Kingdom provides ample evidence of the renewed
strength of the world economy.
[OECD Economic Outlook, Vol 2003/2 No. 74, December 2003 page vii]
In the MYEFO Treasury stated:
« WKH� NH\� GHYHORSPHQW� LQ� UHFHQW� PRQWKV� KDV� EHHQ� WKH� PDUNHG� LPSURYHPHQW� LQ�
the near-term outlook for the global economy, with the pace of activity
accelerating in the United States, and signs of recovery in Asia.
[Treasury MYEFO December 2003, page 3]
Further in a speech presented in February of this year Malcolm Edey (RBA Assistant Governor Economic) stated:
« WKH� ZRUOG� HFRQRP\� GRHV� VHHP� WR� EH� UHFRvering after three years of
underperformance in the early part of this decade. Obviously the outlook is never
risk-free, but a number of the risks that seemed important in the middle of last
year have now faded into the background. In the last nine months or so, the main
economic news around the world has been pointing to a firmer recovery. The
euro area is still lagging behind, but we have seen a solid pick-up in growth in the
US, Japan, China, and across the rest of east Asia, countries which together
PDNH�XS�WKH�PDMRU�SDUW�RI�$XVWUDOLD¶V�H[SRUW�PDUNHW�
[Malcolm Edey Assistant Governor, RBA Address to CEDA/Promina Economic and Political Overview, 27 February 2004]
R5.36 7DEOH�����EHORZ�VKRZV�WKH�5%$¶V�IRUHFDVW� IRU�ZRUOG�JURZWK�� � ,W�FDQ�EH�VHHQ�
that the growtK�RI�$XVWUDOLD¶V�PDLQ�WUDGLQJ�SDUWQHUV�LV�IRUHFDVW�WR�JURZ�E\�����
per cent in 2004.
50 ACTU Minimum Wages Case Reply Submission Chapter 5 ± Economic Conditions and Outlook
Table R5.2: World GDP Growth
Year ± average, per cent
2002 2003 2004
Consensus forecasts
United States 2.2 3.1 4.6
Euro area 0.9 0.5 1.8
Japan -0.4 2.3 2.1
China 8 9.1 8.3
Other east Asia 4.4 3.4 5.1
G7 1.4 2.1 3.3 Major trading partners 2.9 3.2 4.1
Source: RBA Statement on Monetary Policy, February 2004, page 4
R5.37 Therefore, there is agreement from all but ACCI that the rest of the world
economy is growing and will continue to grow. The growth in the world
economy will help alleviate some of the difficulties that exporters may have
due to an appreciating Australian dollar as demand for Australian exports
increase.
Exchange Rate
R5.38 As mentioned in the ACTU original submission the movement in the relative
value of the Australian dollar relative to the US dollar has been characterised
by peaks and troughs since it was floated in 1983. From 1995 to 2001 the
value of the Australian dollar depreciated against the US dollar and reached a
low of 48 cents US in 2001. This made Australian exports very competitive on
the world market as AiG point out:
The strength of the Australian economy has seen exports, particularly for
manufactured goods, grow strongly, assisted by a low and competitive Australian
GROODU�� � ,QGHHG�� RYHU� WKH� VHFRQG� KDOI� RI� WKH� QLQHWLHV�� $XVWUDOLD¶V� PDQXIDFWXUHG�
exports grew by one third, helping Australian business to capture a large share of
its export markets.
[Australian Industry Group, How Competitive is Australia? Big Issues call for Big Ideas, June 2003 page 7]
ACTU Minimum Wages Case Reply Submission 2004 51 Chapter 5 ± Economic Conditions and Outlook
R5.39 When AiG filed their submission the exchange rate was 79.7 cents US. It has
now fallen to 75.8 cents US. This equates to a fall of approximately 5.0 per
cent in the exchange rate in the last two weeks, highlighting the cyclical nature
of the exchange rate.
Manufacturing
R5.40 7KH� $L*� FRQWHQG� WKDW� WKH� &RPPLVVLRQ� VKRXOG� QRW� JUDQW� WKH� $&78¶V� FODLP�
because it will have a detrimental effect on the manufacturing industry that
has to compete in a growing global economy.
R5.41 AiG assert that manufacturers have been able to absorb past wage increases
due to a competitive Australian dollar but with the recent appreciation in the
exchange rate this will no longer be the case.
R5.42 However, in terms of these proceedings there are a several factors mitigating
against this line of reasoning.
R5.43 Firstly, according to the ABS (Cat No. 6306.0) only 12.5 per cent of
manufacturing employees are award only.
R5.44 An appreciating dollar makes exports relatively more expensive which may
affect profits and prices received by exporters. However, a November 2003
survey conducted by DHL of Australian exporters found that only 31 per cent
of firms thought the exchange rate would affect their output and only 28 per
cent said the exchange rate would adversely affect investment decisions [see
DHL Export Barometer Australian Export Trends, DHL Express, November
2003 ± April 2004]
R5.45 Even though a rising Australian dollar will make exports more expensive it
also makes imports relatively� OHVV�H[SHQVLYH�� �$V�SRLQWHG�RXW� LQ� WKH�$&78¶V�
original submission this reduces the costs to manufacturers using imported
52 ACTU Minimum Wages Case Reply Submission Chapter 5 ± Economic Conditions and Outlook
inputs (thus keeping prices down), which will maintain their competitiveness
both domestically and on the world market.
³7KH� PDQXIDFWuring sector has offsetting advantages for firms using imported
inputs in capital equipment. Such investment is critical to our long-term
FRPSHWLWLYHQHVV�´�
[Ian Macfarlane [Minister for Industry, Tourism and Resources], Media Release:
'ROODU¶V�ULVH�KDV�to be seen in economic context, 12 January 2004].
R5.46 Finally, the same DHL survey found that, despite the increasing dollar, 60 per
cent of respondents felt that their orders would increase over the next twelve
months [see DHL Export Barometer Australian Export Trends, DHL Express,
November 2003 ± April 2004].
ACTU Minimum Wages Case Reply Submission 2004 53 Chapter 6 ± Economic Effects
R6 Economic Effects
R6.1 The ACTU claim, if granted, will have no adverse economic impact. None of
the opposing material demonstrates any adverse impact at the aggregate,
sectoral or enterprise level.
Aggregate Effects
R6.2 As noted in Chapter 4 no opposing party provides a genuine economy wide
FRVWLQJ�RI�WKH�$&78�FODLP���2I�SDUWLFXODU�VLJQLILFDQFH�LV�WKH�&RPPRQZHDOWK¶V�
complete abandonment of any investigation of the aggregate impact of the
ACTU claim, in efIHFW��D�WDFLW�DGPLVVLRQ�RI�WKH�YHUDFLW\�RI�WKH�$&78¶V�SRVLWLRQ�
that there are no measurable adverse macroeconomic impacts from its claim.
R6.3 The flaws in the ACCI costing have been outlined in Chapter 4 of these
submissions. The ACCI costing is patently not a proper macroeconomic
costing of the ACTU claim and suffers significant methodological flaws.
R6.4 In support of its contentions regarding the impacts of the ACTU claim, ACCI
rely on two other pieces of evidence:
· The results of its member survey; and
· An extHQVLRQ�RI�$QGUHZ�/HLJK¶V�DQDO\VLV�LQ�KLV�SDSHU�Employment Effects
of Minimum Wages: Evidence from a Quasi Experiment.
Neither of these pieces of evidence withstands scrutiny.
R6.5 1R� ZHLJKW� VKRXOG� EH� SODFHG� RQ� WKH� $&&,¶V� VXUYH\� UHVXOWV� UHJDUGLQJ� WKH�
alleged efIHFWV�RI�ODVW�\HDU¶V�6DIHW\�1HW�$GMXVWPHQW��IRU�UHDVRQV�ZKLFK�DUH�VHW�
out later in this Chapter.
54 ACTU Minimum Wages Case Reply Submission Chapter 6 ± Economic Effects
R6.6 At paragraphs 9.29-����� $&&,� UHO\� RQ� DQ� H[WHQVLRQ� RI� /HLJK¶V� DQDO\VLV� WR�
calculate an estimated job loss of 450,000 jobs from the Australian economy
as a resuOW�RI� WKH�$&78�ZDJH�FODLP���7KH�$&78�KDV�DOUHDG\�VKRZQ�/HLJK¶V�
analysis to be fundamentally flawed and further material regarding the flaws in
that analysis is provided later in this Chapter. However, for present purposes
it suffices to note that ACCI obtain their 450,000 job estimate by multiplying
/HLJK¶V�FDOFXODWHG�HODVWLFLW\�E\�D�IDFWRU�RI�ILYH�RQ�WKH�EDVLV�WKDW�WKH�SURSRUWLRQ�
of award employees is roughly five times greater than the proportion of
employees dependent on the Western Australian statutory minimum wage.
There is simply no credible basis for this approach.
R6.7 There is no linear relationship between an elasticity of demand and the
proportion of the workforce affected by a wage increase. Indeed, even neo-
classical assumptions would suggest that as the population affected by a
wage increase expands and includes persons who are more highly skilled and
highly paid the elasticity of demand will fall.
R6.8 Further, the characterisation of the ACTU claim as a 6 per cent wage rise is
simply a nonsense. The ACTU claim is for a flat dollar increase and, as a
result, it is completely misleading to characterise it as a 6 per cent wage rise.
7KH�DEVXUGLW\�RI�$&&,¶V�SRVLWLRQ� LQ� WKLV� UHVSHFW� LV�KLJKOLJKWHG� LI� RQH�DSSOLHV�
the same methodology of calculation to the increase ACCI have supported in
WKLV� FDVH� WRJHWKHU� ZLWK� $&&,¶V� RZQ� HVWLPDWH� RI� WKH� QXPEHU� RI� HPSOR\HHV�
covered by its proposal. This methodology yields the outcome that the ACCI
proposal would itself cost 150,000 job losses.
Sectoral or Enterprise Effects
R6.9 The analysis in Chapter 2 of the original ACTU submissions and Chapter 2 of
these submissions shows that past Safety Net Adjustments have had no
discernible impact on those sectors in which award employees are most
concentrated. The submissions of ACCI and the Commonwealth in this
regard are dealt with in Chapter 2 of these submissions.
ACTU Minimum Wages Case Reply Submission 2004 55 Chapter 6 ± Economic Effects
R6.10 It is important to note that no party disputes the matters set out in paragraphs
�����WR������DQG�LQ�WDEOH�����RI�WKH�$&78¶V�RULJLQDO�VXEPLVVLRQV�UHJDUGLQJ�WKH�
combined effect of the $18 increase in the Safety Net Adjustment in 2002 and
the 1% Superannuation Guarantee Contribution increase which took effect at
around the same time. As the analysis in those paragraphs shows the
combined effect of most two factors correspond to a $23.80 increase in the
Federal Minimum Wage this year. In light of this evidence there is simply no
basis on which to conclude that an increase of the order of magnitude sought
by the ACTU in this case would have any adverse sectoral impact.
R6.11 $W������WR������$L*�SUHVHQWV�LWV�³HYLGHQFH´�WKDW�6DIHW\�1HW�$GMXVWPHQWV�KDYH�
impacted adversely on employment. That analysis relies on the dispersion of
growth in employment for different occupations ranked as higher or lower
paying. No conclusion can be drawn from that data regarding the impact of
safety net adjustments:
· that data shows that the growth in employment for higher deciles of
occupation relative to lower deciles occurred in the period 1986 to 1996 as
well as during the period 1996 to 2000;
· the most recent data in the analysis is year 2000 data, as a result the
analysis tells us nothing about the most recent period.
R6.12 $L*¶V�JOLE�FRQFOXVLRQ� WKDW�EHFDXVH� UHODWLYH�JURZWK� LQ�KRXUV� IRU� WKH� ORZHU�VL[�
deciles was lower 1996 to 2000 than 1986 to 1995 safety net adjustments
have had an impact on employment is simply unsustainable. No attempt is
made to isolate the impact of award safety net adjustments on the data. The
AiG proposition relies on nothing more than coincidence of timing.
56 ACTU Minimum Wages Case Reply Submission Chapter 6 ± Economic Effects
Academic Research
Hyslop and Stillman
R6.13 $W� SDUDJUDSK� ����� RI� WKH� &RPPRQZHDOWK¶V� VXEPLVVLRQ� WKH� &RPPRQZHDOWK�
GHDOV�ZLWK�WKH�$&78¶V�VXEPLVVLRQV�UHJDUGLQJ�WKH�UHFHQW�VWXG\�RI�WKH�HIIHFWV�RI�
increases in the New Zealand youth wage by Hyslop and Stillman2. The
Commonwealth notes that the study finds a high level of non-compliance by
New Zealand employers and that employment levels may have been affected
by increased compliance levels.
R6.14 The ACCI takes up this theme in paragraph 9.6 of its submission where it
argues that the New Zealand youth minimum wage was irrelevant to the
market and consequently increases did not impact on employment levels.
ACCI raises a number of points based on the assumption that the rates
studied were non-binding.
R6.15 The findings by Hyslop and Stillman are clear. Youth wage levels significantly
increased by up to 69 per cent. The study finds no significant impact on
employment levels or hours worked. The authors raise the issue of non-
compliance themselves and remain committed to their finding that there is no
robust evidence of adverse affects on youth employment or hours worked.
Indeed the authors find stronger evidence of positive employment responses
to the changes.3
R6.16 $W� SDUDJUDSK� ����� $&&,¶V� VXEPLVVLRQ� LV� WKDW� WKH�1HZ� =HDODQG� \RXWK�ZDJH�
reforms had almost no impact on the actual real wages of teenagers. This is
clearly not the case. Earnings and income increased by 10 - 15 per cent for
16-17 year olds and between 5 and 10 per cent for 18 -19 year olds relative to
20 - 25 year olds. Hyslop and Stillman find a significant increase in youth
average wages of 7 per cent for 16 - 17 year olds and 4 per cent for 18 to 19
year olds. These are significant findings as only 10-20 per cent of the wages
2 Hyslop, Dean and�6WLOOPDQ��6WHYHQ��0D\������³Youth Minimum Wage Reform and the Labour Market.´�8QSXEOLVKHG� 3 Ibid page 23
ACTU Minimum Wages Case Reply Submission 2004 57 Chapter 6 ± Economic Effects
distribution was affected by the youth wage reform. The change in wage
levels would have been much more significant had the authors concentrated
their studies on low wage workers.
Manning
R6.17 At paragraph 5.21 of the Commonwealths submission the Commonwealth in
LWV� EULHI� UHVSRQVH� WR� WKH�$&78¶V�DQDO\VLV�RI�3URIHVVRU�$ODQ�0DQQLQJ¶V�ZRUN�
Monopsony in Motion ± Imperfect Competition in Labour Markets,4 argues that
0DQQLQJ¶V¶�PRGHOOLQJ�VXSSRUWV�WKH�&RPPRQZHDOWK¶V�SRVLWLRQ�WKDW�WKH�SRWHQWLDO�
costs of excessive minimum wage increases are high.
R6.18 The Commonwealth fundamentally�PLVFRQVWUXHV�0DQQLQJ¶V�ZRUN� LQ� LWV� EULHI�
response at paragraph 5.21 of its submissions. Manning argues against the
blind assumption that there is a negative relationship between minimum wage
increases and employment levels. In fact Manning argues that it is not
inconceivable that there be concurrent increases in the minimum wage and
employment levels.
Leigh
R6.19 The Commonwealth at paragraph 5.25 whilst noting that the ACTU is highly
critical of a recent paper by Andrew Leigh5 states that these criticisms are yet
to be debated in the literature. This is no longer the case. Ian Watson Senior
Researcher at ACIRRT, University of Sydney has recently published work,
ZKLFK�GHVFULEHV�/HLJK¶V�UHVHDUFK�DV�HPSLULFDOO\�DQG�PHWKRGRORJLFDOO\�IODZHG�6
Watson finds that the model used by Leigh to assess the impact of wage rises
ZDV�D�SRRU�ILW�WR�WKH�GDWD��DQG�ZDV�FRPSURPLVHG�E\�/HLJK¶V�IDLOXUH�WR�LQFOXGH�
adequate statistical controls. This paper is reproduced at Tag 2 of the ACTU
Reply Composite Exhibit.
4�0DQQLQJ��$���³Monopsony in Motion ±�,PSHUIHFW�&RPSHWLWLRQ�LQ�/DERXU�0DUNHWV´ Princeton University Press, Princeton and Oxford, 2003. 5 A. Leigh, ´Employment Effects of Minimum Wages: Evidence from a Quasi-([SHULPHQW´�Australian Economic Review, Vol 36, No 4. 6 I. W atson, ³$�QHHGOH�LQ�D�KD\VWDFN��'R�LQFUHDVHV�LQ�WKH�PLQLPXP�ZDJH�FDXVH�HPSOR\PHQW�ORVVHV"´��ACIRRT working paper 90, March 2004.
58 ACTU Minimum Wages Case Reply Submission Chapter 6 ± Economic Effects
R6.20 :DWVRQ¶V� SDSHU� WDNHV� LQWR� FRQVLGHUDWLRQ� $QGUHZ� /HLJK¶V� HUUDWXP� VKRZQ� DV�
attachment 9-&�LQ�WKH�$&&,¶V�VXEPLVVLRQV�
R6.21 In particular Watson argues:
· Leigh fails to control for a range of factors which may be influencing his
results and that Leigh has selected an inadequate control group.
· The study fails to account for trends in employment during the period of
the study.
· Leigh has failed to deal satisfactorily with the problem of endogeneity.
· 7KH� VWXG\¶V� UHVXOWV� DUH� DW� EHVW� LQFRQFOXVLYH�� � :DWVRQ� DUJXHV� WKDW� WKH�
ILQGLQJV�DUH� µOXGLFURXV¶7 given the size of standard errors involved in this
type of exercise.
· The regression analysis utilised by Leigh produces a model which is a very
poor fit to the data.
R6.22 3URIHVVRU�-XQDQNDU¶V� UHVSRQVH� WR�/HLJK¶V�FRPPHQWV� LV�DWWDFKHG�DW�7DJ���RI�
the ACTU 5HSO\� &RPSRVLWH� ([KLELW�� +LV� FRQFOXVLRQ� LV� WKDW� /HLJK¶V�
econometric analysis is weak for a range of reasons.
R6.23 )XUWKHU�� LW� LV� WR� EH� QRWHG� WKDW� LQ� /HLJK¶V� HUUDWXP� �ZKLFK� LWVHOI� HUURQHRXVO\�
describes the nature of the error he made with his original data) Leigh claims
that using the correct proportions for employment to population has no impact
on his results. Leigh has simply failed to grapple with the problem that using
the proper employment to population ratio, a more appropriate part-time
weighting, ABS seasonally adjusted data and investigating all increases in the
WA statutory minimum wage does affect his results, as the below table and
figure indicates. The data shows broadly a reduction in negative employment
impacts with higher wage increases. The ACTU does not contend for such a
simplistic analysis but it highlights the defects in the approach taken by Leigh.
7 Ibid page 9.
ACTU Minimum Wages Case Reply Submission 2004 59 Chapter 6 ± Economic Effects
7DEOH�5������5HZRUNLQJ�/HLJK¶V�$QDO\VLV�ZLWK�3URSHU�'DWD
WA Rest of Australia Difference in Difference
Implied Elasticity
May-94 0.520 0.490
Nov-94 0.525 0.494
0.005 0.004 0.001
May-94 0.526 0.496
Nov-94 0.533 0.502
0.007 0.006 0.002 0.017
Jun-95 0.543 0.511
Dec-95 0.532 0.512
-0.011 0.001 -0.011 -0.214
Jul-96 0.537 0.507
Jan-97 0.533 0.506
-0.003 -0.001 -0.002 -0.040
Aug-97 0.534 0.499
Feb-98 0.533 0.503
-0.002 0.004 -0.005 -0.600
Sep-98 0.537 0.507
Mar-99 0.528 0.507
-0.009 0.000 -0.009 -0.244
Dec-99 0.540 0.512
Jun-00 0.537 0.517
-0.004 0.005 -0.009 -0.138
Dec-00 0.540 0.514
Jun-01 0.530 0.511
-0.010 -0.003 -0.007 -0.081
Jan-02 0.529 0.510
Jul-02 0.527 0.509
-0.002 -0.001 -0.001 -0.024
Jan-02 0.531 0.510
Jul-02 0.527 0.512
-0.003 0.002 -0.005 -0.122
Source: ABS Cat. No. 6202.0.55.001
60 ACTU Minimum Wages Case Reply Submission Chapter 6 ± Economic Effects
Figure R6.1: Elasticity v. % Increase
y = 0.2252Ln(x) - 0.4917
R2 = 0.7077
-0.700
-0.600
-0.500
-0.400
-0.300
-0.200
-0.100
0.000
0.100
0.00 1.00 2.00 3.00 4.00 5.00 6.00 7.00 8.00 9.00 10.00
% increase
ela
sti
cit
y
Source: Table R6.1 above
R6.24 $V�ZH�QRWHG�LQ�RXU�RULJLQDO�VXEPLVVLRQV�/HLJK¶V�UHVXOWV�DUH�DOVR�VHQVLWLYH�WR�D�
change in the months before and after minimum wage increases which are
analysed.
R6.25 ,W�LV�VXEPLWWHG�WKDW�/HLJK¶V�VWXG\�VKRXOG�EH�GLVUHJDUGHG�
Lewis
R6.26 7KH� 1))¶V� VXEPLVVLRQ� UHOLHV� KHDYLO\� RQ� ZRUN� FRPPLVVLRQHG� E\� WKH� 1))�
undertaken by Professor Philip Lewis8� HQWLWOHG� ³� $� 5HSRUW� RQ� WKH� (IIHFW� RI�
Raising Minimum WDJHV� RQ� 5XUDO� %XVLQHVV´�� 3URIHVVRU� /HZLV¶� SDSHU� ZDV�
DWWDFKHG�WR�WKH�1))¶V��VXEPLVVLRQ�
8 Centre for Labour Market Research University of Canberra.
ACTU Minimum Wages Case Reply Submission 2004 61 Chapter 6 ± Economic Effects
R6.27 Lewis concludes that the level of employment in rural and regional Australia is
QHJDWLYHO\� LPSDFWHG� E\� LQFUHDVHV� LQ� ZDJHV�� /HZLV� ILQGV� WKDW� ³«ULVHV� LQ� WKH�
wages of agricultural workers significantly reduces employment in this
VHFWRU�´9 Lewis relies on previous work undertaken in conjunction with Garnett
A.M10 to establish this negative relationship of -0.80.
R6.28 The following points may be noted regarding the Garnett and Lewis paper:
· The paper tells us nothing of the impact of increases in award wages on
the demand for rural labour. The paper estimates a relationship for
changes in aggregate wages across the rural sector and employment.
There is no basis for calculating how an increase in award wages will
impact on aggregate wages in the sector;
· The Garnett and Lewis labour demand equation appears to be mis-
specified. At the industry level intermediate inputs and other factors such
as land are more important than at the macro level and should be included
in the underlying production function.
· It appears Garnett and Lewis have adjusted their elasticity of substitution
by the share of wages in gross output rather than value added.
R6.29 On 19 November 2003 Vice President Ross varied the Pastoral Industry
Award by including in the award a modified NFF proposal to enable a
streamlined process allowing individual award respondents seeking relief from
the 2003 SNR decision to demonstrate an incapacity to pay.11
R6.30 7KH� &RPPLVVLRQ¶V� ZHE� EDVHd information sheet regarding the Economic
Incapacity Principle was amended on 30 May 2003 to clearly demonstrate that
³,QIRUPDWLRQ� DV� WR�ZKHWKHU� DQ\�&RPPRQZHDOWK�*RYHUQPHQW� DVVLVWDQFH�KDV�
been granted for the purposes of drought relief in a drought declarHG�DUHD�´�
would be acceptable evidence.
9 Professor Philip Lewis, Centre for Labour Market Research University of Canberra. µA Report on the Effect of Raising Minimum W ages on Rural Businesses ¶, paragraph 20. 10 Garnett, A.M. and /HZLV��3�(�7����������µ'HPDQG�DQG�6XSSO\�RI�)DUP�/DERXU�¶�SDSHU�presented to the 31st Conference of Economists, Adelaide, 30 th September ± 4 th October. 11 PR940769
62 ACTU Minimum Wages Case Reply Submission Chapter 6 ± Economic Effects
R6.31 To date only two applications have been made under s113 of the Act for
postponement of the 2003 Safety Net Adjustment. Both applications
concerned properties in New South Wales and concerned one part-time or
casual employee respectively.12 One applicant has informed the Commission
that they seek leave to withdraw their application.
R6.32 7KH�1))¶V� DGYRFDWH� LQ� WKH� DERYH�PDWWHUV� EHIRUH�9LFH�3UHVLGHQW�5RVV� RQ���
February 2004 in response to claims that neither applicant had provided
detailed financial information as required by the amended award, informed the
&RPPLVVLRQ� WKDW� ³:H�>1))@�VHQW�RXW�GHWDLOHG� LQIRUPDWLRQ� WR�RXU�PHPEHUV� LQ�
respect to the nature of the application and the decision of Your Honour last
\HDU�´
R6.33 In addition to the information sent directly to NFF members, Vice President
5RVV¶�GHFLVLRQ�ZDV�ZLGHO\�SXEOLFLVHG�WKURXJKRXW�WKH�UXUDO�HOHFWURQLF�DQG�SULQW�
media. Despite this widespread publicity of an opportunity to defer the 2003
SNR only one application involving one part-time employee is currently on
foot. One application alleging incapacity to pay does not indicate adverse
employment impacts flowing from the moderate pay increases awarded to low
SDLG� UXUDO� ZRUNHUV�� 7KH� 1))¶V� FXUUHQW� VXEPLVVLRQ� PXVW� EH� SODFHG� LQ� Whis
context and rejected.
Surveys
R6.34 At present there are two surveys (one from ACCI and one from RMI) relied
upon in these proceedings in relation to the allegation that safety net
adjustments have adverse economic impacts. A number of points may be
made which relate to both surveys.
R6.35 Both surveys show that overwhelmingly safety net adjustments do not have
adverse employment impacts with more than 80 per cent of businesses in
12 C2004/1707 and C2004/1708
ACTU Minimum Wages Case Reply Submission 2004 63 Chapter 6 ± Economic Effects
each survey responding that the SNA had no impact on employment and with
10 per cent or less indicating adverse employment impacts.
R6.36 Neither survey allows for any calculation of the net employment impact of
safety net adjustments as results are expressed on the basis of the proportion
of firms responding that there had been an impact without any consideration
of the magnitude of that impact.
R6.37 Low Pay Commission research suggests that survey responses will tend to
overstate employment impacts compared to econometric testing of
employment effects. This is partly as a result of response bias and partly as a
result of survey results not measuring the magnitude employment effects
(compare for example the Low Pay Commission survey results with the
results of Stewart).
R6.38 In its May 2002 Employee Earnings and Hours survey the ABS asked
questions regarding both over award employees and the flow of safety net
adjustments. The responses to the questions have not been published due to
data quality concerns. The ABS has advised the ACTU as follows:
A number of data items collected in EEH 2002 are not available for release as a
result of data quality concerns. Included among the data items deemed not
available for release are data on 'Award (paid more than the award rate)' and
the 'Safety net wage adjustment'. For both of these data items, quality
concerns were raised during the editing process and confirmed during the
subsequent Post Enumeration Survey. Contact with providers gave a strong
indication that there were frequent instances of incorrect reporting, usually
resulting from a misunderstanding of the question or the associated notes and
definitions. In particular, many respondents were identified as having
incorrectly reported employees being paid by 'award (paid more than the award
rate)' when there was either clearly no link between the employee's rate of pay
and the relevant award rate, and/or some other form of agreement was in place
which took precedence over the award. With respect to the safety net
adjustment, it became apparent that this term and the associated concept were
not widely understood by respondents. In addition to under-reporting of
entitlement to the safety net adjustment among award-only employees, there was
64 ACTU Minimum Wages Case Reply Submission Chapter 6 ± Economic Effects
frequent incorrect reporting of safety net entitlements among employees who had
no link between their remuneration and an underlying award.
R6.39 The ACCI and RMI surveys purport to investigate precisely those issues in
respect of which the ABS found data quality concerns to be such an issue in
the May 2002 EEH.
R6.40 The ACCI and RMI surveys exclude some or all employers who did not pay
Safety Net Adjustments from the ambit of their questions regarding the impact
of those adjustments. This has the following effects:
· It results in a likely overstatement of the proportion of firms experiencing
negative impacts as firms which logically should suffer no negative
consequences are excluded from the total in respect of which proportions
are expressed;
· It results in a likely understatement of the proportion of firms experiencing
no impact or positive impacts.
· It means that no data is availDEOH� RQ� ³IDOVH� SRVLWLYHV´�� WKDW� LV� ILUPV�ZKR�
logically could not have experienced negative impacts but nonetheless
respond that they have.
R6.41 'DWD�IURP�WKLV�\HDU¶V�DQG�ODVW�\HDU¶V�50,�VXUYH\�PDNH�FOHDU�WKDW�D�SURSRUWLRQ�
of employers will respond that safety net increases have a negative impact
whether logically this is possible or not.
R6.42 For example, last year:
· 13 per cent of firms with no employees said they had reduced the total
number of employees as a result of the award increase compared to 17%
of firms where employees received an increase responding that they had
reduced the total number of employees;
· Similarly 26 per cent of firms who had paid more than the safety net
ACTU Minimum Wages Case Reply Submission 2004 65 Chapter 6 ± Economic Effects
adjustment to their employees attributed an adverse employment impact at
their firm to the award increase.
R6.43 This year additional data supplied by the RMI shows:
· 19 per cent of employers who paid more than the safety net adjustment
attributed a decrease in employment to that adjustment; and
· ��� SHU� FHQW� RI� EXVLQHVVHV� ZKR� DQVZHUHG� ³GRQ¶W� NQRZ´� RU� ³QRW� VXUH´� LQ�
relation to a question which asked then to assess the level of profitability in
their business in the broadest of terms were none the less able to say that
the award increase had adversely impacted on the profitability of their
business.
R6.44 This year the RMI modified aspects of its survey and ACCI designed its
VXUYH\� VXFK� WKDW� E\� OHVV� ³IDOVH� SRVLWLYHV´� ZLOO� FRPH� WKURXJK� WKH� VXUYH\�
process. Far from providing the results of the surveys with greater validity it
simply highlights a huge problem in accepting their veracity.
R6.45 The measured number of firms responding to each survey regarding adverse
employment effects is in both cases (and regardless of which employment
TXHVWLRQ�LV�FRQVLGHUHG�����SHU�FHQW�RU�OHVV���7KH�UHVXOWV�IURP�ODVW�\HDU¶V�DQG�
tKLV�\HDU¶V�50,�VXUYH\V�WHOO�XV�WKDW�UHVXOWV�RI�WKLV�PDJQLWXGH�DUH�MXVW�DV�OLNHO\�
to come from firms where logically the award increase can have had no
adverse impact. In other words the proportion of employers measured by the
surveys as indicating adverse employment effects as a result of the SNA is
that proportion who will always respond that SNA increases have a negative
employment impact whether they do or not.
R6.46 A number of further specific criticisms may be made of the ACCI survey.
R6.47 In no sense is the survey sample properly constituted. Paragraph 8.16 makes
clear that South Australian and Territory businesses will, effectively, not be
represented in the survey sample. Further, an equal number of businesses
were selected for survey from each State affiliate which did participate thus
66 ACTU Minimum Wages Case Reply Submission Chapter 6 ± Economic Effects
potentially greatly skewing results. In addition information provided by ACCI
regarding the industry composition of responding firms indicates that those
firms are not representative of the overall population nor indeed
representative of the distribution of award only employees.
R6.48 On 3 March 2004, in response to an ACTU request for more information
regarding the survey ACCI provided the total number of responses to each
question. It is noteworthy that the percentages reportHG� LQ� $&&,¶V� RULJLQDO�
submissions do not make sense when regard is had to the totals provided in
the more recent information.
R6.49 For example:
· At paragraph 8.18 ACCI says it received 289 surveys but no question is
reported as having more than 287 overall respondents;
· At page 8-7 ACCI purports to cross-tabulate the results of questions 1 and
2 of the survey when these questions had differing numbers of
respondents;
· The cross-WDEXODWLRQ�WDEOH�VXJJHVWV�WKDW�����ILUPV�UHVSRQGHG�³QR´�WR�ERWK�
questions 1 and 2 (using N=286 as the basis for the cross-tabulation) and
as a result would have been asked no further questions: see ACCI page
8-28. This implies the maximum number of responses to subsequent
questions should be 175 (286 ± 111) yet ACCI reports questions 3, 5, 6, 7
and 8 as having greater numbers of respondents than this.
· From paragraphs 8.46 to 8.52 results are reported for questions 3 to 8 in
firms where no direct safety net increase was granted. In light of the way
the survey was conducted and the information contained in the cross
tabulation on page 8-7 of the ACCI survey this population should consist of
some six firms. None of the percentages reported for the responses to
questions 4 to 8 can properly be understood to be a percentage of six.
ACTU Minimum Wages Case Reply Submission 2004 67 Chapter 6 ± Economic Effects
· The proportion of firms responding that numbers of full-time employees
had decreased (question 5) does not make sense. ACCI say there were
181 respondents to this question and they report 4.8% having responded
that there was a decrease in full-time employment. This cannot be so. If
the number of those responding that there was a decrease was 8 the
correct percentage is 4.4%. If the number responding that there was a
decrease is 9 the correct percentage is 5.0%. A similar problem pertains
with the percentage reported as having responded to question 6 as having
seen part time and casual employees increase and as having responded
to question 8 that profitability had decreased.
R6.50 In some instances these might seem like small matters but where (as is the
case in relation to employment impacts) effects reported are small in
magnitude errors of this kind can give little confidence in the veracity of the
reported results.
R6.51 The difference between estimates for responses to question 6 regarding
increases and decreases in full-time employment is not statistically significant
± the relative standard error on the difference estimate is at least 90 per cent
and may be more than 100 per cent depending on whether 8 or 9 firms
responded that full-time employment had decreased. This is equivalent to
saying that the observed difference between the increase and decrease
responses to this question is likely to be the result of sampling variability
UDWKHU�WKDQ�D�³UHDO´�GLIIHUHQFH�
R6.52 In relation to question 6 the difference estimate on the reported results for the
increase and decrease options has a relative standard error of 48.8 per cent,
a level at which the ABS would suggest the estimate should be used with
caution. However as the proportion of firms reporting an increase in part-time
and casual employees is misstated it may be that the RSE exceeds 50 per
cent, a level at which the ABS warns that the estimate is too unreliable for
general use. The true number of firms responding to question 6 that there
was an increase in part-time or casual employment assuming 180
respondents to question 6 is either 8 (4.4 per cent) or 9 (5.0 per cent). Even
68 ACTU Minimum Wages Case Reply Submission Chapter 6 ± Economic Effects
the assumption of 180 responses is problematic, when if the survey were
conducted properly the maximum number of responses should be 175. If
there were 9 responses to question 6 saying an increase then the RSE on the
movement estimate is greater than 50 per cent. If there were 8 responses but
the true number of respondents is 171 then the RSE on the increase estimate
exceeds 50 per cent. None of these possibilities can be ruled out given the
difficulties which arise from the manner in which the results were reported.
R6.53 One final point to note is that whilst attachment 8A suggests ACCI affiliates
were not circularised with instructions regarding conduct of the survey until 18
February 2004, ACCI advised the survey was conducted between 19
December 2003 and 5 February 2004.
R6.54 In short neither the ACCI or the RMI survey can be relied upon for the
SURSRVLWLRQ�WKDW�ODVW�\HDU¶V�VDIHW\�QHW�DGMXVWPHQW�KDG�DQ\ significant adverse
employment impact.
ACTU Minimum Wages Case Reply Submission 2004 69 Chapter 7 ± Needs of the Low Paid
R7 Needs of the Low Paid
Introduction
R7.1 There is nothing in the opposing submissions that should lead the
Commission to depart from its conclusions that:
· Employees on low wages experience difficulties making ends meet and
affording what are generally considered by the broader community to be
basic necessities; and
· Whilst safety net adjustments are not perfectly targeted to meeting the
needs of the low paid, they assist in meeting those needs.
R7.2 There is nothing in the opposing submissions which detracts from the ACTU
submission that the Commission can have regard to the SPRC budget
standards as valid empirically determined benchmarks of adequacy and as
indicators of the needs of the low paid.
Budget Standards
R7.3 In its original submissions the ACTU presented September 2003 low cost and
modest but adequate budget standards. The SPRC budget standards are the
only empirically determined benchmarks before the Commission. We
demonstrated that the budget standards were valid empirically determined
benchmarks to which the Commission could have reference in determining
the ACTU claim. The validity of the standards for this purpose was
demonstrated by outlining the methodology which underlies the construction
of the budget standards and by locating the budget standards in the ABS data
on expenditure of employed households. The SPRC assessment, with which
the ACTU agrees, is that minimum wages should be set at above the low cost
standard but below the modest but adequate standard.
Commonwealth
70 ACTU Minimum Wages Case Reply Submission Chapter 7 ± Needs of the Low Paid
R7.4 In responding to the ACTU submission, the Commonwealth refers to the Joint
Government submission made to the Safety Net Review Case in 1998-99. As
we noted in our original submissions, the SPRC has specifically dealt with
those Joint Government criticisms. The Commonwealth does not respond to
the SPRC material which deals with these Joint Government criticisms.
Specifically, the Commonwealth refers to differences in housing costs in
different locations. SPRC acknowledged this criticism in the Joint
Government submission and dealt with it. [see detailed response to ACCI]
R7.5 The Commonwealth state at paragraph 6.7 that the SPRC have adjusted the
standards for concerns about methodology. This is not correct. The SPRC
has modified very slightly the original estimates to correct minor errors in the
underlying spreadsheets, and has discussed criticisms but does not adjust the
methodology in response to those criticisms.
R7.6 At paragraph 6.14 the Commonwealth refers to the tax transfer system as a
better tool for addressing needs of low paid. The ACTU has consistently
stated that minimum wages and the tax transfer system are complementary,
not substitutes as the Commonwealth suggest. We note that the AIG
Effective Marginal Tax Rate tables show that the low paid do benefit from
wage increases. [see detailed response to AIG]
R7.7 At paragraph 6.19 the Commonwealth claim that the low paid have benefited
from tax cuts in July 2003. The ACTU showed in our original submissions that
the real after tax wages of low paid award workers have barely moved since
1999.
ACCI
R7.8 Chapter 11 of the ACCI submissions consists of a mischaracterisation of the
$&78¶V� XVH� RI� EXGJHW� VWDQGDUGV� DQG� D� UHKDVK� RI� LWV� IODZHG� HFRQRPLF�
arguments regarding the impact of the ACTU claim:
· 3DUDJUDSKV�������WR�������VXJJHVW�WKDW�WKH�$&78�LV�SURPRWLQJ�DQ�³RYHU-
ACTU Minimum Wages Case Reply Submission 2004 71 Chapter 7 ± Needs of the Low Paid
FRQVLGHUDWLRQ´� RI� QHHGV�� � 7KLV� LV� VLPSO\� XQVXVWDLQDEOH�� � 7KH� $&78�
submissions address all factors to which the Commission is required to
have regard and adduce evidence of empirically determined budget
VWDQGDUGV� DV� D� UHVXOW� RI� WKH� &RPPLVVLRQ¶V� FRPPHQWV� LQ� ODVW� \HDU¶V�
decision;
· 3DUDJUDSKV� ������ WR� ������ DUH� SUHGLFDWHG� RQ� WKH� $&&,¶V� IDOODFLRXV�
assumption that the ACTU claim will have adverse impacts on employment
or inflation;
· In paragraphs 11.50 to 11.71 ACCI refer to the ACCER questions but do
not deal with them in any meaningful way.
R7.9 $&&,¶V�FULWLFLVPV�RI�WKH�$&78¶V�XVH�RI�WKH�635&�EXGJHW�VWDQGDUGV�DUH�
· That they are not relevant to minimum wages setting;
· That they contain an upward bias;
· That they are based on costs in Hurstville; and
· That the ACTU assesses the adequacy of the Federal Minimum Wage
(and not other award classification rates) to meet the costs of the budget
standards.
Each of these criticisms is unsubstantiated.
R7.10 At paragraphs 11.57, 13.2, 13.12, 13.13 and 13.14 the ACCI misunderstand
or misrepresent budget standards research. Its application is not restricted to
an assessment of adequacy of social security payments. The budget
standards method can be used generally to develop adequacy benchmarks
for any standard of living. Specifically in relation to setting minimum wages,
the original 1997 paper Development of Indicative Budget Standards for
Australia notes:
72 ACTU Minimum Wages Case Reply Submission Chapter 7 ± Needs of the Low Paid
In relation to the determination of wages, questions of adequacy standards have
predominated ever since the Harvester Judgement in 1907 and have re-emerged
DV�SDUW�RI�WKH�$&78¶V�UHFHQW�µOLYLQJ�ZDJH¶�FODLP�13
R7.11 That is, the updated budget standards report can be validly applied to the task
of setting minimum wages.
R7.12 At paragraphs 13.8 - 13.9 ACCI question that minimum wages can be set
having regard to a point between the low cost and modest but adequate
standards. As we stated in our original submissions, the ACTU commissioned
the updating of the budget standards report to provide empirically determined
benchmarks of adequacy. Further, we had SPRC locate the budget
standards in the quintiles of household expenditure data (ABS) to verify that
they are appropriate to the task before the Commission. The SPRC made its
assessment of where in relation to the two standards it was appropriate to
focus upon in determining wages for the reasons given in the report. As noted
by ACCI, the ACTU agrees with the SPRC judgement. ACCI accepts that the
low cost standards were designed to assess the adequacy of social security
payments. SPRC say this makes a standard higher than the low cost
standards appropriate. This leads to the conclusion, noted in the SPRC
report, that somewhere between the two standards is appropriate. A point
between two empirically determined benchmarks is empirically grounded.
R7.13 ACCI note that SPRC acknowledges potential for upward bias in the budget
standards methodology (paragraphs 13.18 - 13.20). The SPRC report
DFNQRZOHGJHV�³WKHUH�LV�D�ULVN�LQ�WKLV´�but it also states that there are a series
of steps designed to combat this by validating the estimates using focus group
feedback from consumers and behavioural data on actual expenditure
patterns.
R7.14 The ACCI assertion at paragraph 13.19 that the use of Hurstville for costing is
a source of upward bias is not correct. The budget standards are based on
13 Saunders P, Chalmers J, McHugh M, Murray C, Bittman M, Bradbury B, Development of Indicative Budget Standards for Australia, SPRC, UNSW, page 28
ACTU Minimum Wages Case Reply Submission 2004 73 Chapter 7 ± Needs of the Low Paid
living costs in Hurstville but as such this does not create an upward bias in the
estimates.
R7.15 ACCI question the ACTU use of single income households (paragraphs 13.26
- 13.36). The ACCI couples data does not relate to income distribution or the
low paid. The ABS Household Expenditure Survey (HES) shows that first
quintile households with employee income up to $682 per week (in 1998-99)
are made up of 36.2 per cent lone person households, 22.3 per cent couples
with dependent children, 18.9 per cent couple only, and 8.0 per cent lone
parent with dependent children, (among others). There is good reason to
suspect that single income families might be more concentrated amongst
couple families in the lowest income quintile but even if the 23 per cent figure
on which ACCI rely is used then 57.4 per cent of all households in the lowest
quintile of working households are single income households.
R7.16 The ACCI arguments imply that ACCI prefer an approach in which the wage
depends upon the family/household circumstances, including what other
sources of wage incomes there are. This seems at odds with all accepted
notions of equity and the rights of the individual. The logic of the ACCI
position suggests, for example, that if a married worker with a working spouse
was to divorce, their employer should increase her/his wages to compensate
for the loss in income at the household level.
R7.17 It is important to note here that the ACCI cannot compare the disposable
income of a couple with two employed persons with the SPRC September
2003 budget standards for households with one employed person (a single
wage earner). That is, the number of adults, number of employed adults, and
indeed the number of children in the household has an impact on the budget
standards themselves. The difference in budget standard between a couple
household where one of the couple is employed and where two are employed
is the extra cost of employment of the second member.
74 ACTU Minimum Wages Case Reply Submission Chapter 7 ± Needs of the Low Paid
R7.18 The ACCI seem to think issues of regional variation are paramount
(paragraphs 13.37 ± 13.60). They are not. As we said in response to the
Commonwealth, SPRC acknowledges and deals with this issue.
R7.19 The first point to be made is that a safety net wage has to support low paid
workers in Sydney as well as the rest of the country.
R7.20 At paragraph 13.37 ACCI quote the SPRC report on regional variations in
market rents if the original methodology was reapplied. The point ACCI miss
is that in relation to the budget standards before the Commission market rents
have been adjusted by CPI. Using the example ACCI quote, the rent in the
housing budget is not the September 2003 market median rent of $240 for a
two bedroom unit in Middle Sydney but the $196 which results from CPI
adjustment of the Hurstville rent included in the original 1997 budget
standards. Because the increase in market rents has outstripped the increase
in the CPI (which was used to adjust the Hurstville rents included in the
budget standards) SPRC conclude:
More importantly, this in turn results in a narrowing of the differential between the
�6\GQH\�EDVHG��PDUNHW�XVHG� LQ� WKH�EXGJHW�VWDQGDUGV� �«�DQG� WKH�DFWXDO� UHQWV� LQ�
other capital cities.
R7.21 $W�SDUDJUDSK�������$&&,�VWDWH�³%XGJHW�VWDQGards are being used to assess
needs. To the extent that needs vary markedly, their possible utility for this
FDVH� LV� GLPLQLVKHG´�� �$V� WKH�SRLQW� EHLQJ�PDGH� UHODWHV� WR� ORFDWLRQ�� WKH�$&&,�
confuse the needs themselves (which will vary between households, as
indicated by the SPRC budget standards), with the cost of meeting those
needs (which may vary by location). (ACCI repeat this confusion of needs
and costs in paragraph 13.80.)
R7.22 ACCI produces two cost of living calculators derived from Internet websites of
WZR�PLJUDWLRQ�VHUYLFHV�FRPSDQLHV�µ$XVWUDOLD-0LJUDWLRQ¶�DQG�µ*R�0DWLOGD¶�
R7.23 There is no reason to assume that the basket of goods and services used in
the calculators even remotely resemble the budget standards baskets.
ACTU Minimum Wages Case Reply Submission 2004 75 Chapter 7 ± Needs of the Low Paid
Indeed, the calculator basket of goods and services will almost certainly differ
from the Low Cost budget basket which as the SPRC report points out differs
from the Modest But Adequate basket.
R7.24 7KH�H[SODQDWLRQ�RI�WKH�µ*R-0DWLOGD¶�FDOFXODWRU�FRPHV�ZLWK�WKH�ZDUQLQJ�
great care should be taken before relying on the results - your monthly pattern of
expenditure may be unlike our basket, and could give a result significantly
different to that derived from our calculator.
R7.25 Moreover, while ACCI seeks to rely on these calculators, they make no
attempt to explain the fact that they produce different results. For example,
Calculator 1 claims that the Melbourne equivalent of the $360.10 Sydney
Single Low Cost budget is $287. Calculator 2 estimates this figure at
��������� � $V� WKH� ³*R� 0DWLOGD´� FDOFXODWor warns if the basket of goods is
different the result will be different.
R7.26 Finally, the calculators appear to be out of date ± the Go-Matilda calculator is
based on the quarter ended 31 March 2001 and house prices the quarter
ended 31 December 2000. The budget standards are for September 2003.
R7.27 These calculators, for which the underpinning baskets of goods and services
have no relevance to the budget standards baskets of goods and services,
provide no assistance to the Commission.
R7.28 The ACCI submission on the significance of the FMW (paragraphs 13.61 ±
13.79) is curious to say the least. It is not consistent with the ACCI insistence,
elsewhere in its submission and its relevant press releases, on portraying the
ACTU claim exclusively as a percentage of the FMW.
R7.29 If the ACCI is suggesting that the FMW is redundant then it should be
abolished and a new FMW at a higher (non-redundant) level be established.
76 ACTU Minimum Wages Case Reply Submission Chapter 7 ± Needs of the Low Paid
R7.30 The ACTU chose single income households earning the FMW for two
reasons:
· In assessing the adequacy of the FMW to meet needs it is necessary to
consider how it relates to budget standards; and
· Workers have to live on the FMW for the time they are receiving that rate
of award pay.
R7.31 Moreover, in our original submissions we provided an estimate of incomes
needed by the couple, and couple plus two households to achieve the Low
Cost Budget Standard. As SPRC states minimum wages should be
determined somewhere in between the Low Cost and Moderate But Adequate
standards so a higher wage is implied. Self-evidently, this calculation shows
that for these family types wage income considerably in excess of the current
FMW is insufficient to meet even the low cost budget standard.
R7.32 Our calculations in our original submissions assume that families with children
are eligible for maximum Rent Assistance. Not all low paid working family
households will be eligible for Rent Assistance. For those family households
not eligible for Rent Assistance household disposable income would be
$55.44 lower than calculated, making the gap even wider.
NFF
R7.33 The Lewis report for the NFF presents a cost of living index ± country versus
city to show regional variation in the cost of living. The ACTU makes the
following comments in relation to this exercise:
· The city/country differential is small at 4 per cent.
ACTU Minimum Wages Case Reply Submission 2004 77 Chapter 7 ± Needs of the Low Paid
· There is no reason to assume that the basket of goods and services used
resembles the budget standards baskets. Therefore the weightings used
in the index may vary widely from the budget standards.
· The totals are sensitive to the assumption that the largest component
³2WKHU´� ������� SHU� FHQW� RI� WKH� WRWDO� LQGH[�� KDV� EHHQ� DVVLJQHG� D� UHODWLYH�
price based on the transportation differential (1.01). For example, if the
LQGH[� ILJXUH� IRU� µ2WKHU¶� LV� ����� �WKHUHE\� PDWFKLQJ� WKH� UHODWLYH� SULFH�
assigned to Food, Alcohol and Tobacco, and Petrol) the total city-country
differential reduces from 4 per cent to 3 per cent.
· Housing is the only component where the relative price is lower for the
country - most things are more expensive in the country.
Conclusion
R7.34 In summary, none of the criticisms of the SPRC budget standards or the
$&78¶V� XVH� RI� WKHP� ZLWKVWDQG� VFUXWLQ\�� � 7KH� EXGJHW� VWDQGDUGV� SURYLGH�
compelling empirical evidence that a significant increase is needed in
minimum wages to allow low paid working families to properly meet their
needs.
Witness Evidence
R7.35 No party other than ACCI refers to the ACTU Witness evidence.
R7.36 ACCI questions (paragraph 14.12) whether Robyn Larnach has three
dependents who do not contribute to household income. ACCI appear to be
VHHNLQJ�WR�VXEVWLWXWH�WKHLU�LQWHUSUHWDWLRQ�RI�0V�/DUQDFK¶V�FLUFXPVWDQFHV�IRU�KHU�
RZQ��QRW�WKH�$&78¶V����7KH�IDFW�WKDW�0V�/DUQDFK¶V�VRQ�KDV����KRXUV�ZRUN�SHU�
week, the earned income from which he spends on himself, and that her
daughter receives (part) Youth Allowance, which she spends on her personal
bills and expenses, does not in any way detract from the fact that they, and
78 ACTU Minimum Wages Case Reply Submission Chapter 7 ± Needs of the Low Paid
KHU� GDXJKWHU¶V� FKLOG�� OLYLQJ� DW� KRPH� DV� WKH\� GR�� DUH� GHSHQGHQW� XSRQ� 0V�
Larnach.
R7.37 At paragraphs 14.14 ± 14.15 ACCI question witness expenditures and
priorities. ACCI says some witnesses can save while others cannot. Only
0LFKHOOH� %LOOLQJWRQ¶V� ���� SHU� ZHHN� µVDYLQJV¶� DQG� 5KRQGD� 6FDQQHOO¶V� ����
µVXSHUDQQXDWLRQ� VDODU\� VDFULILFH¶� FRXOG� EH� GHVFULEHG� DV� VDYLQJ�� � $&&,� VD\V�
some witnesses report that they are able to spend some money on recreation,
entertainment and holidays while others say this is not possible. Only Symon
Heaton spends money on recreation and entertainment. Maria Perez spends
$15 per week on recreation and Robyn Larnach spends $2.30 per week on
entertainment.
R7.38 The witness evidence on holidays is as follows:
· Symon Heaton had a holiday 12 months ago for the duration of three days
± we submit what most people would describe as a long weekend or a
mid-week get away.
· Robyn Larnach has holidays once a year staying with relatives or at their
expense.
· Rhonda Scannell 6 months ago had holiday paid for by her children.
· Maria Perez had a holiday a year ago paid for by her children.
· Wilhelmina Wilson had a holiday 3 years ago paid for by her sons.
· Carolyn Stephenson has not had a holiday in 2 years.
· Michelle Billington says she cannot afford a holiday.
R7.39 Excluding Symon Heaton, this evidence is not consistent with the ACCI
assertion that witnesses report that they are able to spend some money on
KROLGD\V�� �0U�+HDWRQ¶V�KROLGD\�RI� WKUHH�GD\V��ZH�VXEPLW��GRHV�QRW�FRQVWLWXWH�
µKROLGD\V¶�DV�JHQHUDOO\�XQGHUVWRRG�
ACTU Minimum Wages Case Reply Submission 2004 79 Chapter 7 ± Needs of the Low Paid
R7.40 At paragraphs 14.17 ± 14.20 ACCI makes some curious assertions. Award
wage increases and the incentive to bargain (paragraph 14.17b) and safety
net adjustments and the effect on employment (paragraph 14.17d) are
matters which are canvassed in these Cases. The comments of Ms Billington
and Ms Larnach are not irrelevant. The ACTU (paragraph 14.19) does not
ask witnesses to address matters other than those directly before this
Commission. That several witnesses provide evidence that they cannot afford
private health insurance is valid comment in terms of things they miss out on.
R7.41 $W�SDUDJUDSK�������$&&,�TXHU\�5KRQGD�6FDQQHOO¶V�VWDWHG�classification. Ms
Scannell is in fact employed as a Classification Skill Level 2 Manufacturing
Production Employee. Her award rate of pay is $465.00. Ms Scannell
receives a $5.00 attendance bonus making her total weekly gross $470.00. A
deduction of $20.00 for superannuation is made leaving $450.00. The
FRQIXVLRQ�DULVHV�IURP�0V��6FDQQHOO¶V�SD\�VOLS�ZKLFK�KDV�WKLV�³�������´�VWDWHG�
as her gross pay.
R7.42 7KHVH�FODULILFDWLRQV�GR�QRW�DOWHU�0V�6FDQQHOO¶V�QHW�ZDJH�RU�H[SHQGLWXUH�� �$V�
stated in her witness statement deductions of $71.00 tax and $5.80 union fees
IURP� �������� OHDYH� ��������� � 0V� 6FDQQHOO¶V� H[SHQGLWXUH� LV� ��������� � ,W�
UHPDLQV�WKH�FDVH�WKDW�0V�6FDQQHOO¶V�HYLGHQFH�LV�LOOXVWUDWLYH�RI�WKH�QHHGV�RI�WKH�
low paid.
R7.43 Notwithstanding the ACCI submission, the evidence of the witnesses is
illustrative of the real life experiences of employees who earn award rates of
pay. They juggle finances, go into debt and go without things like holidays,
new clothes, insurance cover and motor vehicles.
Inequality
R7.44 No one contests the ACTU submission that income inequality has increased
since 1996.
80 ACTU Minimum Wages Case Reply Submission Chapter 7 ± Needs of the Low Paid
Other Submissions
Tax and Transfer System ± AIG
R7.45 The Commonwealth and the AIG refer to the July 2003 tax cuts. In our
original submissions the ACTU modelled the real wage after tax for low paid
workers, and showed that it had barely moved since 1999. We conclude from
this that there has not been a significant change in the tax system for low paid
workers.
R7.46 At paragraphs 5.10, 5.17, 5.20, 5.24, 5.28, and Annexures 4 and 5 AIG refers
to changes to income support arrangements, at paragraph 5.10 going as far
DV�GHVFULELQJ�WKHP�DV�µVLJQLILFDQW¶���7KLV�$,*�SRUWUD\DO�RI�ZKDW�LV�LQ�IDFW�UHJXODU�
indexation of income support and income thresholds is misleading. There has
been no significant change in income support arrangements as claimed by
AIG.
R7.47 The dollar and percentage increases depicted in AIG Annexure 4 simply
maintain the real values of the payments (and thresholds). The Commission
should not discount the SNA on this basis. The figures shown are gross
disposable income increases, not real disposable income increases. We
quote Centrelink from its online publication Adjusting Maximum Payment
Rates:
The maximum rate of all payments from Centrelink will change from time to time.
MRVW�SD\PHQWV�DUH�DGMXVWHG�LQ�OLQH�ZLWK�WKH�&RQVXPHU�3ULFH�,QGH[��&3,�«��
R7.48 The Centrelink sheet lists all payments in a table. The second column to that
WDEOH� LV�KHDGHG� ³:KHQ�$GMXVWHG� �HDFK�\HDU�´�� �7KDW� LV�� WKH�FKDQJHV�DUH�QRW�
significant changes to income support arrangements as AIG claim, but regular
indexation, not to increase the values of the payments but to maintain their
real value; and not the significant adjustments in the social safety net the
Commission was referring to in the 2003 decision.
ACTU Minimum Wages Case Reply Submission 2004 81 Chapter 7 ± Needs of the Low Paid
R7.49 We utilise the EMTRs in AIG Annexure 5 to show the net increase from the
ACTU claim in this Case. The following tables are based on Tables 1 ± 5 in
AiG Annexure 5. We have assumed that the EMTRs at each earned income
level apply across the next $26.60 (or part-time equivalent). We note that this
is the same approach adopted by AIG for their calculations in Annexure 5. As
AIG notes in their footnote 1 to Annexure 5 this is generally an accurate
measure. The ACTU Claim and net amounts for income levels below $450
have been calculated on the basis of the percentage to the FMW.
Table R7.1: Single Income, Two Parent Family, with Two Children
Household earned income
Effective Marginal Tax
Rate
ACTU Claim (including part-time
equivalent)
Increase in disposable income resulting from
ACTU Claim $ per week % $ per week $ per week %
250 17 14.83 12.31 83.0 300 17 17.80 14.77 83.0 350 17 20.76 17.23 83.0 400 17 23.73 19.70 83.0 450 34 26.60 17.56 66.0 500 34 26.60 17.56 66.0 550 30 26.60 18.62 70.0 600 50 26.60 13.30 50.0 650 61.5 26.60 10.24 38.5 700 61.5 26.60 10.24 38.5
Table R7.2: Two Income (equally distributed) Two Parent Family with Two Children
Household earned income
Effective Marginal Tax Rate
ACTU Claim (including part-time
equivalent)
Increase in disposable income resulting from
ACTU Claim $ per week Per cent $ per week $ per week Per cent
250 32 14.83 10.08 68.0 300 32 17.80 12.10 68.0 350 32 20.76 14.12 68.0 400 32 23.73 16.14 68.0 450 17 26.60 22.08 83.0 500 17 26.60 22.08 83.0 550 17 26.60 22.08 83.0 600 37 26.60 16.76 63.0 650 48.5 26.60 13.70 51.5 700 48.5 26.60 13.70 51.5
82 ACTU Minimum Wages Case Reply Submission Chapter 7 ± Needs of the Low Paid
Table R7.3: Two Income (ratio of 2:1) Two Parent Family with Two Children
Household earned income
Effective Marginal Tax Rate
ACTU Claim (including part-time
equivalent)
Increase in disposable income resulting from
ACTU Claim $ per week % $ per week $ per week %
250 21.3 14.83 11.67 78.7 300 21.3 17.80 14.01 78.7 350 27 20.76 15.5 73.0 400 27 23.73 17.32 73.0 450 27 26.60 19.42 73.0 500 27 26.60 19.42 73.0 550 27 26.60 19.42 73.0 600 47 26.60 14.10 53.0 650 69.8 26.60 8.03 30.2 700 59.8 26.60 10.69 40.2
Table R7.4: Single Parent Family with One Child
Household earned income
Effective Marginal Tax Rate
ACTU Claim (including part-time
equivalent)
Increase in disposable income resulting from
ACTU Claim $ per week % $ per week $ per week %
250 57.7 14.83 6.27 42.3 300 65.5 17.80 6.14 34.5 350 65.5 20.76 7.16 34.5 400 65.5 23.73 8.19 34.5 450 65.5 26.60 9.18 34.5 500 77.5 26.60 5.99 22.5 550 66.4 26.60 8.94 33.6 600 58.9 26.60 10.93 41.1 650 61.5 26.60 10.24 38.5 700 61.5 26.60 10.24 38.5
Table R7.5: Single Person
Household earned income
Effective Marginal Tax Rate
ACTU Claim (including part-time
equivalent)
Increase in disposable income resulting from
ACTU Claim $ per week Per cent $ per week $ per week %
250 17 14.83 12.31 83.0 300 37 17.80 11.21 63.0 350 18.5 20.76 16.92 81.5 400 18.5 23.73 19.34 81.5 450 35.5 26.60 17.16 64.5 500 35.5 26.60 17.16 64.5 550 31.5 26.60 18.22 68.5 600 31.5 26.60 18.22 68.5 650 31.5 26.60 18.22 68.5 700 31.5 26.60 18.22 68.5
ACTU Minimum Wages Case Reply Submission 2004 83 Chapter 7 ± Needs of the Low Paid
R7.50 Last year the Commission concluded on AIG EMTR evidence
[227] The evidence adduced by AiG demonstrates that the net benefit of a given
wage rise to federal award employees can be as low as 20 per cent and is in the
order of 50 to 60 per cent for most persons at the lower pay levels. That is, for
every additional dollar paid by an employer the net amount received by the
employee can be as low as 20 cents and will usually be 50 cents or less.
R7.51 The above tables, based on the AIG EMTR tables in AIG Annexure 5, clearly
do not demonstrate this conclusion. While the net benefit of a given wage rise
to federal award employees can be as low as 20 per cent, and is in the order
of 40 per cent for Sole Parents, for most persons at lower pay levels the net
benefit is in the order 60 or 70 or 80 per cent. That is, for every additional
dollar paid by an employer the net amount received by the employee can be
as low as 20 cents but will usually be 60 or 70 or 80 cents or more.
R7.52 Further we submit that the EMTRs reflected in the above tables are consistent
ZLWK�WKH�1$76(0�GDWD�SUHVHQWHG�E\�WKH�$&78�LQ�ODVW�\HDU¶V�&DVH���7KDW�GDWD�
showed that:
· For individuals with earnings from wages and salaries, categorised by
decile of family income, more than three quarters in each of the first four
deciles, with average gross family income up to $729 per week, face
effective marginal tax rates not exceeding 40 per cent.
R7.53 The problem of high EMTRs for low and middle income households is an
issue for government to address - it provides no basis for the Commission to
award less than it considers otherwise appropriate. As the NATSEM figures
show, the cases in which such high EMTRs apply are in the vast minority.
84 ACTU Minimum Wages Case Reply Submission Chapter 7 ± Needs of the Low Paid
Table R7.6: EMTRs of individuals with earnings according to their deciles of gross family income
Family EMTR ranges Gross family income decile 1 2 3 4 % % % % % 0 12 2 * * 0<=20 51 4 3 4 20<=40 16 81 82 73 40<=60 4 4 3 6 60<=80 10 6 10 15 80<=100 7 2 * 2 >100 * * * * Total 100 100 100 100 Average EMTR 30 36 36 39 Proportion with EMTR >60% 17 8 11 17 Average gross family income per week 291 498 613 729 Source: NATSEM Table 7
Financial Stress
R7.54 At paragraph 12.4 ACCI engage in a comparison between financial stress
indicators for jobless households and employed households utilising results
from the ABS General Social Survey. They imply this has not been available
before but a comparison of financial stress indicators for Unemployed
households and Employed households was made in the 2002 Case (ACTU
Reply Submission).
R7.55 The ABS advise that the General Social Survey tables present results for
person in households, not households as suggested by ACCI. The ACCI
comparison (paragraphs 12.8 ± 12.12) of jobless persons with all persons in
households where at least one person is employed is not relevant to this
&DVH�� � 7KH� ³$OO� SHUVRQV� LQ� HPSOR\HG� KRXVHKROGV´� FDWHJRU\� FOHDUO\� LQFOXGHV�
people who are not low paid. Rather the Commission should consider
financial stress data for households in the bottom quintile of income
distribution of households whose principal source of income is wages and
salaries. This is the relevant population in terms of a consideration of needs
of the low paid. As Professor Sue Richardson stated in her paper14 referred
to in ACTU submissions last year while not all low paid are in low income
14 Richardson S., Low W age Jobs and Pathways to Better Outcomes, NILS Monograph Series Number 7
ACTU Minimum Wages Case Reply Submission 2004 85 Chapter 7 ± Needs of the Low Paid
households, (full-time) employed persons in low income households are low
paid.
R7.56 In previous Cases the ACTU has provided the Commission with an analysis of
financial stress facing low income households relying on Household
Expenditure Survey data (HES) for 1998-99. This analysis showed that
households in the lowest quintile of working households suffered significant
degrees of financial stress.
R7.57 The ACTU commissioned ABS unpublished data from the General Social
Survey to provide the financial stress data for the population persons whose
principal source of income is employee income. The following table provides
the results for persons in households in the first quintile and first two quintiles
of the income distribution for the population principal source of income
employee income.
R7.58 The data shows that over the ensuing three years since the HES data was
collected financial stress for people in low income working households
remains a significant issue.
86 ACTU Minimum Wages Case Reply Submission Chapter 7 ± Needs of the Low Paid
Table R7.7: Financial Stress Indicators: person in Households whose principal source of income is employee income 2002
Quintiles for Persons in Households with Principal Source of Income: Employee Income Only (a)
1st
Quintile
1st two Quintiles
Upper boundary of income quintile(s) $425 $569
('000) % ('000) % Unable to raise $2,000 within a week for something important 323 23.5% 574 19.9% Number of different types of cash flow problems in last 12 months(b) None 902 65.6% 2006 69.4% One 178 13.0% 347 12.0% Two 103 7.5% 189 6.5% Three or more 149 10.8% 274 9.5% Types of cash flow problems in last 12 months(c) Unable to pay electricity, gas, or telephone bills on time 282 20.5% 537 18.6% Unable to pay mortgage or rent payments on time 127 9.2% 208 7.2% Unable to pay for car registration or insurance on time 141 10.3% 264 9.1% Unable to make minimum payment on credit card 95 6.9% 177 6.1% Pawned or sold something because cash was needed 61 4.5% 95 3.3% Unable to heat home 18 1.3% 36 1.2% Went without meals 30 2.2% 59 2.0% Sought financial help from friends or family 173 12.5% 343 11.9% Sought assistance from welfare /community organisations 50 3.6% 89 3.1% Number of different types of dissaving actions taken in last 12 months(b) None 955 69.5% 2101 72.7% One 277 20.2% 497 17.2% Two 69 5.0% 171 5.9% Three or more 42 3.1% 63 2.2% Types of dissaving actions taken in last 12 months(c) Reduced home loan repayments 81 5.9% 136 4.7% Drew on accumulated savings/term deposits 126 9.2% 267 9.2% Increased the balance owing on credit cards by $1000 or more 114 8.3% 213 7.4% Entered into a loan agreement with family/friends 64 4.6% 122 4.2% Took out a personal loan 70 5.1% 124 4.3% Sold household goods or jewellery 31 2.2% 62 2.1% Sold shares, stocks or bonds 31 2.3% 58 2.0% Sold other assets 28 2.0% 40 1.4% Other action taken 19 1.4% 33 1.1% All persons aged 18 years or over 1375 100.0% 2889 100.0%
Source: ABS Cat No 4159.0 2002 unpublished data. (a) persons where household income was not known or was not adequately reported are excluded from all columns
except the all persons column (b) information for some persons was not known or not adequately reported (c) Categories are not mutually exclusive
ACTU Minimum Wages Case Reply Submission 2004 87 Chapter 7 ± Needs of the Low Paid
Underemployment, unemployment and needs of the low paid
R7.59 In Chapter 6 AIG refer to the Professor Sue Richardson paper Low Wage
Jobs and Pathways to Better Outcomes. In paragraph 6.7 AiG quote a range
of conclusions which relate to countries other than Australia:
· third dot point - the conclusion comes from a study by Stewart and
Swaffield on Mobility in the UK, and the statistics from a study of the UK by
Stewart again.
· fourth dot point - the qXRWHG�³ORZ�SD\-QR�SD\�F\FOH´�LV�IURP�WKH�VDPH�VWXG\�
by Stewart for the UK.
· fifth dot point ± the quote and statistics are from a study of the US by
Connolly and Gottschalk.
R7.60 AiG overstate the extent to which low pay is associated with insecure
employment in Australia. Richardson does not say that all low paid people
cycle through a low pay ± no pay cycle. While Richardson says quite a large
section of low wage workers cycle between low wage jobs and no jobs she
does not suggest that this is universal. As Richardson says the issue with low
wage jobs is:
The growth of such jobs will be of most concern if they are dead-end, such that the
people who occupy them stay in the same sorts of jobs for lengthy periods of time,
and leave them largely because they leave the workforce rather than because they
find substantially better jobs. [p. 2]
88 ACTU Minimum Wages Case Reply Submission Chapter 7 ± Needs of the Low Paid
ACTU Minimum Wages Case Reply Submission 2004 89 Chapter 8 ± Conclusion
R8 Other Matters The Proposed ACCI Change to the Principles
R8.1 ACCI in Chapter 15 of its submissions proposes a change to the Principles
regarding the operative date of variations. This change should be rejected out
of hand. It simply has the effect of creating delays in award workers receiving
pay increases. If ACCI is genuinely concerned regarding the impact on firms
of short notice regarding operative dates of awards it should itself on behalf of
its members make application at an earlier stage to vary those awards for
Safety Net Adjustments and/or take greater steps to publicise the likelihood of
upcoming award increases given that the 12 month rule provides ACCI and its
members with significant advanced notice of the likely operative date of any
Safety Net Adjustment.
The AiG Proposed Change to the Principles
R8.2 In Chapter 4 of its submissions AiG proposes a change to the Principles
requiring of unions a commitment to continuous improvement in productivity,
efficiency and flexibility of workplaces covered by the award in order to access
Safety Net Adjustments. Such a change should not be granted.
R8.3 $V� PDWHULDO� LQ� WKH� $&78¶V� RULJLQDO� VXEPLVVLRQV� DQG� WKHVH� VXEPLVVLRQV�
demonstrates award dependent sectors have increased productivity
throughout the period of Safety Net Adjustments and there is simply no basis
for the suggestion that the proposed amendment is in any way necessary.
R8.4 Section 143(1B) of the Workplace Relations Act (the Act) already requires that
decisions of the Commission should not:
(a) include matters of detail or process that are more appropriately dealt with
by agreement of the workplace or enterprise level;
90 ACTU Minimum Wages Case Reply Submission Chapter 8 ± Conclusion
(b) prescribe work practices or procedures that restrict or hinder the efficient
performance of work; and
(c) contain provisions that have the effect of restricting or hindering
productivity, having regard to fairness to employees.
R8.5 The principal objects of the Act and the objects of Part VI of the Act are also
relevant in this regard.
R8.6 The proposed amendment to the Principles does not paraphrase or reproduce
any provision of the Act. In the circumstances it should not be included: see
paragraph 171 Safety Net Review Wages May 2002 [PR002002].
Skills Based Classification Structure and Relativities
R8.7 The AiG submission in relation to skills based classifications and relativities is
wrong when it says that in all previous Safety Net Wage Cases the ACTU and
its affiliates have elected to pursue flat dollar safety net adjustments. Indeed
this is only the third case in which the ACTU has not pursued as some portion
of its claim a percentage increase.
R8.8 7KH� FODLP� WKDW� WKH� $L� *URXS¶V� SURSRVDO� IRU� D� IODW� ���� SHU� ZHHN� DGMXVWPHQW�
results in less compression of relativities than the ACTU claim is no more than
a function of the fact that the Ai Group proposal results at every level of the
classification structure in significantly lower increases for workers than the
ACTU claim.
Award Structures
R8.9 The Ai Group seeks certain actions from the Commission regarding the recent
amendment to the Workplace Relations Act regarding Victorian workers. As
the AiG itself notes it can be expected that unions will shortly make application
to have various awards declared as Common Rules. Those applications
ACTU Minimum Wages Case Reply Submission 2004 91 Chapter 8 ± Conclusion
VKRXOG�EH�GHDOW�ZLWK�LQ�WKH�RUGLQDU\�FRXUVH�RI�WKH�&RPPLVVLRQ¶V�EXVLQHVV�DQG�
there is no need for the Safety Net Review proceedings to pre-empt in any
way the issues which might arise in those proceedings.
The Commonwealth proposal to defer the decision date
R8.10 At paragraphs 1.17 to 1.20 the Commonwealth suggests the Commission
should defer its decision until after the May Budget to allow the parties to
make submissions on the matters contained in the Budget. This proposal
should be rejected out of hand.
R8.11 The directions in these proceedings (to which the Commonwealth consented)
provide a timetable for filing of materials and for oral submissions which
conclude on 29 March 2004. The Commonwealth proposal essentially seeks
to create a further round of submissions (the directions already provide for, in
effect, two rounds of written submissions and one round of oral submissions).
R8.12 It is disingenuous to suggest that a further round of submissions would not
result in delays in variation of awards. Parties would require time to digest the
detail of the Budget and write submissions, respond to other parties
submissions and the Commission would have to consider all these matters.
R8.13 The Commonwealth says only one award was varied for the safety net prior to
20 May last year but as the ACCI submission shows 34 were varied prior to
the end of May and 147 in June. It is unrealistic to assume parties and the
Commission could properly conclude a round of submissions regarding
measures in the Budget (and presumably new economic data and other
material released after 29 March 2004 and before 11 May 2004) in a period
of nine days. The relevant date is not 20 May but more likely some time in
-XQH�� �$V�$&&,¶V�PDWHULDO�VKRZV�VLJQLILFDQW�QXPEHUV�RI�DZDUGV�ZRXOG�KDYH
their date of effect for the Safety Net Adjustment extend beyond 12 months
from the last increase under the Commonwealth proposal.
92 ACTU Minimum Wages Case Reply Submission Chapter 8 ± Conclusion
Submission of DEAC / NCID and ACCI regarding Disability Employment
Submissions of the DEAC and NCID
R8.14 As a result of last years Safety Net Review ± Wages decision, the
Commission established a Disability Sector Industry Consultative Council
(ICC). The ICC has met on several occasions and is continuing to meet to
discuss the matters raised by DEAC and NCID.
Submissions of ACCI regarding Supported Wage Considerations
The ACTU supports the proposal to achieve consistency of the minimum
payment under the Supported Wage System in awards of Commission -
³3URSRVHG�$SSURDFK�)RU�����´�FRQWDLQHG�LQ�WKH�$&&,�VXEPLVVLRQV�DW�������WR�
16.38.
MINIMUM WAGES CASE 2004
ACTU Reply Composite Exhibit
9 March 2004
D No. 5/2004
1
MINUMUM WAGES CASE 2004
REPLY COMPOSITE EXHIBIT
CONTENTS
TAG No. 1. Economic Tables and Charts (update) 2. A needle in a haystack. Do increases in the minimum wage
cause employment losses? Working paper 90, Ian Watson, ACIRRT, University of Sydney, March 2004
3. Impact of Minimum Wages on Employment: Some Comments
RQ�$QGUHZ�/HLJK¶V�SDSHU�DQG�UHVSRQVH�WR�P\�FULWLTXH, P.N. Junankar, University of Western Sydney, March 2004
2
TAG 1
Economic Tables and Charts (update)
3
Tag 1: Economic Conditions - tables and commentary1
(Updated for new data released since the ACTU's original submission)
Contents
Table 1 Proportions of Real Gross Domestic Product - Major
Expenditure Components
Table 2 Changes in Real Gross Domestic Product
Table 3 Aggregate Private Final Domestic Demand
Table 4 Total Public and Final Demand
Table 5 Contributions to Growth in Gross Domestic Product
Table 6 Indicators of Consumption Expenditure - Retail Trade
Table 7 Manufacturing Production
Table 8 The Housing Sector
Table 9 Investment
Table 10 Consumer Price Index (CPI)
Table 11 Wage Cost Index
Table 12 Average Weekly Earnings
Table 13 Company Profits
Table 14 Employment
Table 15 Unemployment
Table 16 Balance of Payments
1 Note: As in previous submissions, all data in these tables has been expressed in trend terms, unless otherwise mentioned. While seasonally adjusted estimates may provide a clearer focus on adjustments in the real economy, by abstracting from the effects of seasonal influence, they still include factors of volatility and irregularity, which can make interpretation difficult.
The trend estimates presented dampen out these irregularities using a moving average methodology. This provides a more reliable guide to the underlying directions of the data.
4
TABLE 1: PROPORTIONS OF REAL GROSS DOMESTIC PRODUCT
MAJOR EXPENDITURE COMPONENTS
Component
year to Dec. 2002
year to Sept. 2003
year to Dec. 2003
Final Consumption Expenditure
Households 60.0 60.6 60.8
Government 17.9 18.0 17.9
Total 77.8 78.5 78.8
Gross Fixed Capital Expenditure
Private
Dwellings 6.0 6.2 6.3
Non-dwelling construction 3.2 3.7 3.8
Machinery and equipment 7.2 7.8 8.1
Intangible fixed assets 1.6 1.6 1.6
Ownership transfer costs 1.7 1.7 1.7
Total private gross fixed capital expenditure 20.0 21.3 21.7
Public (total) 3.7 3.8 3.8
Total gross fixed capital expenditure 23.8 25.2 25.5
Change in inventories 0.0 0.5 0.7
Gross National Expenditure (GNE) 101.5 104.2 105.0
Net Exports (a) -1.4 -3.8 -4.6
Statistical Discrepancy -0.1 -0.4 -0.4
Gross Farm Product 3.4 2.7 2.6
GROSS DOMESTIC PRODUCT 100 100 100
Source: ABS Cat. No. 5206.0
Notes:
(a) Exports minus imports
All figures are trend estimates
Reference year for chain volume measures is 2001-02
5
Table 1: Proportions of Real Gross Domestic Product - Major Expenditure Components
Table 1 presents the major expenditure components as a percentage of GDP for the years ended December 2002, September 2003 and December 2003. The relative size of each of these components has continued to remain stable over this period.
The December 2003 data show that Final Consumption Expenditure accounted for 60.8 per cent of total GDP over the year, up slightly from the 60.6 per cent recorded over the year to September 2003.
The total contribution of private investment expenditure to GDP has continued to grow in December 2003, with total private investment expenditure contributing 21.7 per cent of total GDP over the year, compared with 21.3 per cent over the year to September 2003, and 20.0 per cent over the year to December 2002.
The increase in the contribution of private investment to GDP over the past year has come from all sources of private investment expenditure. Investment spending on private dwellings accounted for 6.3 per cent of total GDP over the year to December 2003, compared with 6.0 per cent in the 2002 calendar year. Similarly, the contribution of spending on business investment items (non-dwelling construction and machinery and equipment) to total GDP has also increased. Over the year to December 2002, investment spending on non-dwelling construction, and machinery and equipment each accounted for 3.2 per cent and 7.2 per cent of total GDP, increasing to 3.8 per cent and 8.1 per cent respectively over the latest year to December 2003.
The contribution of public sector investment to GDP has increased slightly going from 3.7 per cent (over the year to December 2002) to 3.8 per cent (to December 2003) of total GDP.
Net exports subtracted 4.6 per cent of total GDP over the year to December 2003, up on the year to September 2003 (which subtracted 3.8 per cent of GDP).
The farm sector contributed 2.6 per cent to total GDP for the year to December 2003.
6
TABLE 2: CHANGES IN REAL GROSS DOMESTIC PRODUCT
Gross domestic product Gross farm product Gross non-farm product percentage change on
previous
period year
earlier previous
period year
earlier previous
period year
earlier Year - 1998-99 5.2 12.8 4.9 1999-00 3.8 7.0 3.6 2000-01 2.1 -1.7 2.2 2001-02 3.8 3.6 3.8 2002-03 3.0 -24.1 4.0 Six Months - 1999-2000 Dec 1.7 3.8 3.3 10.4 1.6 3.6 Jun 2.0 3.7 0.6 3.9 2.0 3.7 2000-01 Dec 0.6 2.6 -2.4 -1.9 0.6 2.7 Jun 1.0 1.6 1.0 -1.5 1.1 1.7 2001-02 Dec 2.3 3.3 4.2 5.3 2.3 3.4 Jun 1.9 4.3 -2.2 2.0 1.8 4.2 2002-03 Dec 1.4 3.4 -19.3 -21.1 2.3 4.1 Jun 1.2 2.6 -9.8 -27.3 1.5 3.8 2003-04 Dec 2.0 3.2 20.2 8.4 1.5 3.1 Quarter - 2000-01 Sep 0.2 3.1 -1.5 -0.4 0.2 3.1 Dec 0.1 2.1 -1.5 -3.2 0.1 2.2 Mar 0.4 1.4 0.8 -2.6 0.4 1.5 Jun 1.1 1.8 1.9 -0.3 1.1 1.9 2001-02 Sep 1.2 2.8 2.3 3.5 1.3 3.0 Dec 1.1 3.8 1.9 7.0 0.9 3.8 Mar 1.0 4.4 -0.2 5.9 0.8 4.2 Jun 0.8 4.2 -5.7 -1.9 1.0 4.1 2002-03 Sep 0.7 3.7 -11.4 -15.0 1.2 4.0 Dec 0.5 3.1 -12.5 -27.0 1.0 4.1 Mar 0.5 2.6 -6.0 -31.2 0.7 4.0 Jun 0.8 2.6 5.6 -23.0 0.7 3.7 2003-04 Sep 1.1 2.9 12.1 -2.6 0.8 3.2 Dec 1.1 3.5 8.8 21.1 0.8 3.0 Source: ABS Cat. No. 5206.0 Note: All figures are trend estimates Reference year for chain volume measures is 2001-02
7
Table 2: Changes in Real Gross Domestic Product
GDP growth in the December quarter 2003 was 1.1 per cent. In total, GDP grew 3.5 per cent in trend terms over the year to December 2003.
Gross Farm Product (GFP) increased by 8.8 per cent during the December 2003 quarter, to be 21.1 per cent higher than at the same time a year earlier. This is largely due to a break in the drought.
Abstracting from the farm sector of the economy, Gross Non-Farm Product (GNFP) continued to grow strongly in the December 2003 quarter, increasing a further 0.8 per cent. GNFP in December 2003 was 3.0 per cent higher that at the same time a year earlier.
8
TABLE 3: AGGREGATE PRIVATE FINAL DOMESTIC DEMAND
Private Consumption Private Fixed
Investment Private Final Domestic
Demand
percentage change on
previous
period year
earlier previous
period year
earlier previous
period year
earlier
Year - 1998-99 4.8 5.4 5.0 1999-20 4.1 7.7 5.0 2000-01 2.8 -5.5 0.8 2001-02 3.4 9.6 4.8 2002-03 4.1 3.8 15.5 6.5 6.8 4.5 Six months -
1999-2000
Dec 2.1 4.5 4.1 7.2 2.6 5.2 Jun 1.6 3.7 3.9 8.2 2.1 4.7 2000-01 Dec 1.4 2.9 -6.3 -2.7 -0.5 1.6 Jun 1.3 2.6 -2.0 -8.2 0.5 0.0 2001-02 Dec 1.5 2.8 5.8 3.7 2.5 3.0 Jun 2.4 3.9 9.2 15.6 4.0 6.6 2002-03 Dec 1.9 4.4 8.3 18.3 3.5 7.6 Jun 1.9 3.8 4.3 12.9 2.5 6.0 2003-04 Dec 3.0 4.9 5.7 10.3 3.7 6.3 Quarter 2000-01 Sep 0.7 3.0 -3.9 1.0 -0.4 2.5 Dec 0.7 2.9 -4.1 -6.2 -0.4 0.6 Mar 0.6 2.7 -1.1 -9.7 0.2 -0.4 Jun 0.6 2.6 2.5 -6.6 1.0 0.4 2001-02 Sep 0.7 2.7 2.7 -0.2 1.2 2.0 Dec 0.9 2.9 3.5 7.8 1.5 4.0 Mar 1.3 3.6 4.8 14.1 2.1 6.0 Jun 1.2 4.3 5.0 16.9 2.2 7.1 2002-03 Sep 0.9 4.5 4.3 18.7 1.8 7.8 Dec 0.7 4.2 2.7 17.8 1.2 7.4 Mar 0.8 3.8 1.7 14.4 1.1 6.3 Jun 1.3 3.9 2.4 11.6 1.6 5.8 2003-04 Sep 1.5 4.5 3.0 10.2 1.9 5.9 Dec 1.6 5.4 2.9 10.4 1.9 6.7 Source: ABS Cat No. 5206.0 Notes: Reference year for chain volume measures is 2001-02 All figures are trend estimates
9
Table 3: Private Final Domestic Demand
Growth in Private Final Domestic Demand continued to remain strong during the December 2003 quarter, increasing 1.9 per cent during the quarter to be a solid 6.7 per cent higher than a year earlier, driven by solid growth in both private consumption and investment.
Private Consumption expenditure increased 1.6 per cent during the December 2003 quarter, to be 5.4 per cent higher than at the same time a year ago.
Growth in private fixed investment expenditure has been even stronger, increasing 2.9 per cent in the December 2003 quarter, to be 10.4 per cent higher than in December 2002.
10
TABLE 4: TOTAL PUBLIC AND FINAL DEMAND
Total public final demand Total final demand
percentage change on
previous
period year
earlier previous
period year
earlier
Year - 1998-99 4.5 4.8 1999-00 4.1 4.8 2000-01 -0.5 0.5 2001-02 2.5 4.3 2002-03 3.9 6.2 Six months - 1999-2000 Dec 2.9 4.4 2.6 5.0 Jun 0.9 3.9 1.9 4.5 2000-01 Dec -0.8 0.1 -0.6 1.2 Jun -0.2 -1.0 0.4 -0.2 2001-02 Dec 1.9 1.6 2.3 2.7 Jun 1.4 3.3 3.4 5.8 2002-03 Dec 2.2 3.7 3.2 6.7 Jun 2.0 4.2 2.4 5.7 Quarter - 2000-01 Sep -0.5 0.9 -0.5 2.2 Dec -0.4 -0.7 -0.4 0.3 Mar -0.2 -1.3 0.1 -0.6 Jun 0.3 -0.8 0.9 0.1 2001-02 Sep 1.2 0.9 1.2 1.8 Dec 1.0 2.4 1.4 3.6 Mar 0.5 3.1 1.8 5.3 Jun 0.8 3.5 1.9 6.4 2002-03 Sep 1.1 3.5 1.6 6.8 Dec 1.4 3.8 1.3 6.7 Mar 1.0 3.8 1.3 5.9 Jun 0.6 4.3 1.0 5.4 2003-04 Sep 0.5 3.5 1.6 5.4 Dec 0.7 2.8 1.7 5.9 Source: ABS Cat No. 5206.0 Notes: Reference year for chain volume measures is 2001-02 All figures are trend estimates
11
Table 4: Public and Total Final Demand
Total final demand expenditure continued to grow solidly in the December 2003 quarter, increasing 1.7 per cent, to be 5.9 per cent higher than in December 2002.
As can be seen in Table 3, part of this has been due to strong growth in both private consumption and investment expenditure.
Total Public Final Demand has also increased strongly in the December quarter 2003, up 0.7 per cent to be 2.8 per cent higher than at the same time a year earlier.
12
TABLE 5: CONTRIBUTIONS TO GROWTH IN GROSS DOMESTIC PRODUCT
2002-
03 2003-
04
Component Sep Dec Mar Jun Sep Dec
Dec Qtr
2001 to
Dec Qtr
2002
Sep Qtr
2002 to Sep
Qtr 2003
Dec Qtr 2002 to Dec Qtr
2003
Final Consumption Expenditure
Government 0.2 0.2 0.1 0.1 0.1 0.1 0.7 0.6 0.5
Private 0.6 0.4 0.5 0.8 0.9 1.0 2.7 2.7 3.2
Total final consumption expenditure 0.8 0.6 0.7 0.9 1.1 1.1 3.3 3.3 3.8
Gross Fixed Capital Expenditure
Private
Dwellings 0.3 0.1 0.0 0.0 0.1 0.2 1.1 0.3 0.3
Non-dwelling construction 0.3 0.3 0.1 0.0 0.1 0.1 1.2 0.5 0.3
Machinery and equipment 0.2 0.2 0.2 0.4 0.4 0.2 1.0 1.1 1.2
Real Estate transfer expenses 0.0 0.0 0.0 0.0 0.0 0.1 0.1 0.1 0.1
Total private gross fixed capital formation 0.8 0.6 0.3 0.5 0.6 0.6 3.3 2.1 2.2
Public
Total public gross fixed capital formation 0.1 0.1 0.1 0.0 0.0 0.0 0.2 0.2 0.1
Total gross fixed capital formation 0.9 0.7 0.4 0.5 0.6 0.7 3.4 2.3 2.2
Increase in stocks
Private non-farm -0.1 0.1 0.4 0.4 0.0 -0.2 -0.2 0.9 0.6
Farm -0.1 0.1 0.1 0.0 0.0 0.1 -0.2 0.2 0.2
Total changes in inventories -0.4 0.0 0.8 0.4 0.1 -0.5 -0.6 1.4 0.8
Gross National Expenditure 1.4 1.4 1.6 1.8 1.8 1.6 6.3 6.6 6.9
Exports of goods and services 0.1 -0.1 -0.3 -
0.3 0.0 0.1 0.1 -0.7 -0.5
less Imports of goods and services 0.7 0.6 0.6 0.7 0.7 0.7 3.0 2.7 2.8
Net Exports -0.6 -0.7 -0.9 -
1.0 -0.8 -0.6 -2.8 -3.4 -3.3
Statistical discrepency -0.1 -0.2 -0.2 0.0 0.1 0.2 -0.4 -0.3 0.1
Gross Domestic Product 0.7 0.5 0.5 0.8 1.1 1.1 3.1 2.9 3.5
Source: ABS Cat. No. 5206.0
Note:
Reference year for chain volume measures is 2001-02
All figures are trend estimates
13
Table 5: Contributions to Growth in Gross Domestic Product
As can be seen, there has been little change to that data presented from the September 2003 quarter.
Total final consumption expenditure contributed 1.1 percentage points towards the total 1.1 percentage point growth in GDP in the December 2003 quarter. This was counterbalanced by a 0.6 percentage point subtraction from net exports and 0.5 percentage point subtraction from changes in inventories from GDP growth.
Total gross fixed capital formation contributed a further 0.7 percentage points towards GDP growth in the December quarter 2003.
14
TABLE 6: INDICATORS OF CONSUMPTION EXPENDITURE
Retail Turnover (value) - trend (a) New Motor Vehicle Sales (number)
percentage change on
previous period year earlier previous period year earlier Year - 1998-99 5.7 3.7 1999-00 5.0 -6.4 2000-01 6.5 4.7 2001-02 7.8 2.3 2002-03 6.5 7.8 Quarter - 2001-02 Sep 1.5 7.8 1.8 -5.1 Dec 1.7 8.1 3.5 -0.7 Mar 2.0 7.6 2.8 6.6 Jun 2.1 7.6 0.5 8.9 2002-03 Sep 1.6 7.7 1.0 8.0 Dec 0.9 6.9 1.5 5.9 Mar 1.0 5.9 3.1 6.3 Jun 1.9 5.6 4.8 10.9 2003-04 Sep 2.7 6.7 3.2 13.3 Dec 2.4 8.2 -1.5 9.9 Month - 2002-03 Jul 0.5 7.8 0.4 8.3 Aug 0.5 7.8 0.5 8.2 Sep 0.4 7.5 0.5 7.6 Oct 0.3 7.2 0.4 6.7 Nov 0.3 6.9 0.6 5.8 Dec 0.3 6.5 0.7 5.4 Jan 0.3 6.2 1.0 5.3 Feb 0.4 5.8 1.3 6.0 Mar 0.5 5.6 1.5 7.4 Apr 0.6 5.5 1.6 9.1 May 0.7 5.5 1.6 10.9 Jun 0.8 5.8 1.7 12.5 2003-04 Jul 0.9 6.2 1.3 13.5 Aug 0.9 6.7 0.5 13.5 Sep 0.9 7.3 -0.2 12.8 Oct 0.8 7.8 -0.7 11.5 Nov 0.7 8.3 -0.9 9.9 Dec 0.6 8.6 -0.8 8.2 Jan 0.5 8.8 -0.7 6.4 Source: ABS Cat. Nos. 8501.0 and 9414.0.55.001
15
Table 6: Indicators of Consumption Expenditure
Since the ACTU's original submission, additional data on retail turnover has become available for the months of December 2003 and January 2004, as has data on January 2004 Motor Vehicle sales.
The value of retail turnover increased 0.6 and 0.5 per cent in each of the months of December 2003 and January 2004 respectively, leaving it 8.8 per cent higher over the year to January 2004.
The latest motor vehicles sales data shows that the number of new motor vehicles sold in January 2004 decreased by 0.7 per cent, to be 6.4 per cent higher than a year ago.
16
TABLE 7: MANUFACTURING PRODUCTION
percent change on
$ million previous period year earlier
Year -
1998-99 72194 2.0
1999-00 72820 0.9
2000-01 74696 2.6
2001-02 76726 2.7
2002-03 78518 2.3
Quarter -
2000-01
Sep 18768 0.3 5.8
Dec 18663 -0.6 3.8
Mar 18601 -0.3 1.2
Jun 18664 0.3 -0.3
2001-02
Sep 18870 1.1 0.5
Dec 19115 1.3 2.4
Mar 19316 1.1 3.8
Jun 19425 0.6 4.1
2002-03
Sep 19495 0.4 3.3
Dec 19630 0.7 2.7
Mar 19724 0.5 2.1
Jun 19669 -0.3 1.3
2003-04
Sep 19532 -0.7 0.2
Dec 19377 -0.8 -1.3
Source: ABS Cat. No. 5206.0
Notes:
Reference year for chain volume measures is 2001-02
All figures are trend estimates
17
Table 7: Manufacturing Production
The latest National Accounts data suggests that manufacturing production fell by 0.8 per cent during the December 2003 quarter, to be 1.3 per cent lower than a year earlier.
18
TABLE 8: THE HOUSING SECTOR
Private Dwelling
Expenditure (a)
Total New Dwelling
Approvals
Value of New Dwelling
Approvals
Value of Lending for New
Dwellings percentage change on previous period Year 1998-99 8.3 2.0 -0.2 -3.6 1999-00 12.0 11.8 11.5 1.4 2000-01 -17.5 -29.0 -11.4 -3.6 2001-02 16.1 38.1 30.2 28.3 2002-03 16.3 2.2 16.9 -2.3 Quarter - 2000-01 Sep -10.8 -21.6 -12.6 -9.6 Dec -13.0 -3.7 2.9 -3.2 Mar -4.6 5.3 6.7 19.9 Jun 6.2 16.7 10.5 22.0 2001-02 Sep 7.2 18.6 11.7 15.6 Dec 6.8 2.6 2.6 -2.5 Mar 6.3 -1.5 2.1 -21.3 Jun 5.5 4.5 4.5 6.9 2002-03 Sep 4.7 4.0 9.4 -2.9 Dec 2.3 -3.9 3.6 4.3 Mar 0.3 -5.4 -3.7 1.5 Jun 0.8 3.0 3.9 20.0 2003-04 Sep 1.9 6.0 5.2 10.9 Dec 2.6 -2.0 -2.6 0.4 Month - 2002-03 Jul (b) 1.5 3.5 7.4 Aug 0.7 3.5 0.0 Sep -0.4 2.8 -7.4 Oct -1.5 1.3 0.1 Nov -2.3 -0.2 20.7 Dec -2.7 -1.6 -10.1 Jan -2.3 -1.9 -5.4 Feb -1.1 -1.1 4.6 Mar 0.2 0.3 15.6 Apr 1.0 1.2 -3.8 May 2.1 2.7 22.3 Jun 2.4 2.9 -7.1 2003-04 Jul 2.5 2.0 16.2 Aug 1.6 0.7 -11.9 Sep 0.3 -0.5 6.9 Oct -0.9 -1.3 0.6 Nov -1.7 -1.3 -1.6 Dec -2.0 -1.0 2.3 Source: ABS Cat. Nos. 5206.0, 5609.0 and 8731.0 Notes: (a) Reference year for chain volume measures is 2001-02 (b) This data from ABS National Accounts Cat.no. 5206.0, and is only available on a quarterly basis All figures are trend estimates
19
Table 8: The Housing Sector
Private Dwelling expenditure continued to increase by 2.6 per cent during the December 2003 quarter.
The most recent data on dwelling approvals, and those concerning the value of lending for new dwellings, continue to show a rather mixed message.
Both the number and value of new dwelling approvals declined during the month of December 2003, by 2.0 per cent and 1.0 per cent respectively, suggesting some levelling off in spending on housing may occur over the coming year, as has been expected for some time. The value of lending for new dwellings, however, grew during the month of December 2003 to be 2.3 per cent higher.
A levelling off of expenditure on housing to more normal levels has been expected for some time now.
20
TABLE 9: INVESTMENT
Private Business Fixed Investment
Non-dwelling
construction
Machinery &
equipment Total (a)
Total public
investment
Change in private
non-farm stocks
percentage change on previous period $ million
Year -
1998-99 8.5 -0.1 3.0 7.9 5477
1999-2000 -8.6 11.1 3.7 8.0 4066
2000-01 -18.7 4.2 -3.4 -11.0 1501
2001-02 8.7 5.4 6.3 4.7 718
2002-03 34.9 14.3 20.2 5.2 2009
Quarter -
1998-99
Sep 1.4 -1.9 -0.7 3.6 669
Dec -0.3 0.8 0.4 2.2 1002
Mar 0.0 0.8 1.6 -0.2 1720
Jun -0.7 2.9 0.9 2.4 2086
1999-2000
Sep -1.8 2.5 0.9 7.2 1834
Dec -3.0 3.0 0.5 2.3 1097
Mar -5.1 3.5 -1.0 -3.4 535
Jun -6.5 1.7 -1.7 -5.9 600
2000-01
Sep -7.6 0.8 -1.7 -4.7 754
Dec -5.2 -0.1 -1.5 -1.4 562
Mar -1.1 -0.8 -0.9 -0.2 184
Jun 1.5 0.2 0.6 0.7 1
2001-02
Sep 0.6 0.8 0.7 3.7 132
Dec 1.8 2.3 2.1 1.7 265
Mar 8.5 3.9 5.2 -0.7 255
Jun 12.0 4.2 6.4 0.0 66
2002-03
Sep 10.5 3.5 5.6 1.5 -185
Dec 7.6 2.4 4.1 3.4 -26
Mar 2.7 3.0 2.9 1.9 782
Jun 1.3 4.7 3.6 -0.2 1438
2003-04
Sep 2.5 4.4 3.8 -0.5 1474
Dec 2.5 2.8 2.7 0.4 1014
Source ABS Cat. No. 5206.0
Notes:
(a) Total of non-dwelling construction and machinery & equipment investment
Reference year for chain volume measures is 2001-02
All figures are trend estimates
21
Table 9: Investment
Growth in each of the components of business investment has continued to remain strong during the December 2003 quarter.
Non-dwelling construction investment expenditure increased by 2.5 per cent during the December 2003 quarter.
Machinery and equipment investment spending also increased solidly by 2.8 per cent in the December 2003 quarter.
Considering these two items together, total Private business fixed investment expenditure rose 2.7 per cent during the December 2003 quarter.
Total public investment also rose in the December quarter by 0.4 per cent.
22
TABLE 10: CONSUMER PRICE INDEX
All groups (a)
percentage change on
previous period percentage change
on year earlier
Year -
1998-99 1.2
1999-00 2.4
2000-01 6.0
2001-02 2.9
2002-03 3.1
Quarter -
2000-01
Sep 3.7 6.1
Dec 0.3 5.8
Mar 1.1 6.0
Jun 0.8 6.0
2001-02
Sep 0.3 2.5
Dec 0.9 3.1
Mar 0.9 2.9
Jun 0.7 2.8
2002-03
Sep 0.7 3.2
Dec 0.7 3.0
Mar 1.3 3.4
Jun 0.0 2.7
2003-04
Sep 0.6 2.6
Dec 0.5 2.4
Source: ABS Cat. No. 6401.0
Notes:
(a) weighted average of eight capital cities
23
Table 10: Consumer Price Index (CPI)
The latest figures for the December quarter 2003 show CPI continues to remain within the 5%$¶V�WDUJHW�UDQge increasing be 0.5 per cent for the December quarter 2003 to be 2.4 per cent higher for the year.
24
TABLE 11: WAGE COST INDEX (a) All Sectors Private Sector Public Sector
percentage change on
previous
period year
earlier previous
period year
earlier previous
period year
earlier
Year - 1999-2000 2.9 2.8 3.0 2000-2001 3.4 3.5 3.4 2001-2002 3.3 3.2 3.4 2002-2003 3.5 3.4 3.8 Quarter - 1997-98 Dec 0.8 0.8 0.8 Mar 0.8 0.8 0.8 Jun 0.8 0.8 0.9 1998-99 Sep 0.7 3.2 0.7 3.2 1.0 3.5 Dec 0.8 3.2 0.7 3.0 1.0 3.8 Mar 0.8 3.1 0.7 2.9 0.9 3.9 Jun 0.8 3.1 0.7 2.9 0.9 3.9 1999-2000 Sep 0.7 3.0 0.7 2.9 0.7 3.6 Dec 0.7 2.9 0.7 2.8 0.6 3.1 Mar 0.7 2.8 0.7 2.8 0.6 2.8 Jun 0.8 2.9 0.8 2.9 0.7 2.6 2000-01 Sep 0.9 3.1 0.9 3.2 0.9 2.8 Dec 0.9 3.4 0.9 3.4 1.0 3.2 Mar 0.9 3.6 0.9 3.6 1.0 3.6 Jun 0.9 3.7 0.9 3.7 0.9 3.8 2001-02 Sep 0.8 3.6 0.8 3.5 0.8 3.8 Dec 0.7 3.4 0.7 3.3 0.8 3.6 Mar 0.8 3.2 0.8 3.2 0.8 3.3 Jun 0.8 3.2 0.9 3.2 0.8 3.2 2002-03 Sep 0.9 3.3 0.9 3.3 0.9 3.3 Dec 0.9 3.5 0.9 3.4 1.0 3.6 Mar 0.9 3.6 0.8 3.5 1.1 3.9 Jun 0.9 3.6 0.8 3.4 1.2 4.3 2003-04 Sep 0.9 3.6 0.8 3.3 1.2 4.6 Dec 0.9 3.6 0.8 3.3 1.1 4.7 Source: ABS Cat. No. 6345.0 Notes: (a) Total hourly rates of pay, excluding bonuses All figures are trend estimates
25
Table 11: Wage Cost Index
The latest W age Cost Index (W CI) figures for total hourly rates of pay, excluding bonuses during the December 2003 quarter are shown in Table 11.
The Private Sector, Public Sector and All Sectors W CI measures each increased by 0.8, 1.1 and 0.9 per cent respectively during the December quarter 2003, broadly in line with December quarter 2002 numbers.
Over the year to December 2003, the All Sectors W CI has increased 3.6 per cent.
26
TABLE 12: AVERAGE WEEKLY EARNINGS
Full-time Adults All employees
Weekly Ordinary Time Earnings
(AWOTE)
Weekly Total Earnings (AWE)
Weekly Total Earnings
(AWE Total Earnings)
percentage change on
previous period
year earlier
previous period
year earlier
previous period
year earlier
Year -
1998-99 3.6 3.4 2.2
1999-00 3.6 3.2 2.5
2000-01 5.1 4.6 5.3
2001-02 5.6 5.4 4.2
2002-03 5.1 5.2 4.3
Quarter -
2000-01
Aug 1.2 5.3 1.0 4.9 1.3 5.6
Nov 1.1 5.3 0.9 4.7 1.0 5.8
Feb 1.2 5.0 1.0 4.4 1.0 5.2
May 1.4 5.0 1.3 4.3 1.2 4.6
2001-02
Aug 1.6 5.4 1.6 4.9 1.2 4.4
Nov 1.4 5.7 1.4 5.4 0.9 4.3
Feb 1.2 5.7 1.3 5.7 0.9 4.2
May 1.1 5.4 1.2 5.6 0.8 3.8
2002-03
Aug 1.0 4.9 1.1 5.2 1.0 3.6
Nov 1.3 4.8 1.3 5.0 1.2 4.0
Feb 1.6 5.2 1.6 5.3 1.4 4.5
May 1.5 5.6 1.3 5.4 1.4 5.1
2003-04
Aug 1.3 5.9 1.8 6.1 1.4 5.5
Nov 1.1 5.6 1.3 6.1 1.3 5.6
Source: ABS Cat. Nos. 6302.0
All figures are Trend estimates
27
Table 12: Average Weekly Earnings
Growth during the November 2003 quarter in each of the three wages measures from the ABS's Average W eekly Earnings are slightly below that recorded in the August quarter 2003.
The Average W eekly Ordinary Time Earnings (AW OTE) and Average W eekly Earnings (AW E) measures for Full-time Adults grew by 1.1 and 1.3 per cent respectively during the November 2003 quarter, to be 5.6 per cent and 6.1 per cent higher over the year.
The All employees W eekly Total Earnings measure was up 1.3 per cent in the November 2003 quarter, to be 5.6 per cent higher over the year.
28
TABLE 13: COMPANY PROFITS
Company Profits before tax Gross Operating Surplus
(GOS)
percentage change on
Profit share of total factor
incomes (a)
previous
period year earlier previous
period year earlier per cent
Year -
1998-99 16.3 3.2 23.2
1999-00 30.0 7.7 23.8
2000-01 -4.6 6.6 24.0
2001-02 6.4 7.4 24.4
2002-03 31.3 6.5
Quarter -
1999-2000
Sep 7.8 26.8 1.4 2.3 22.9
Dec 8.6 30.7 3.4 5.1 23.4
Mar 7.4 32.6 4.7 9.9 24.2
Jun 3.1 29.5 3.5 13.5 24.6
2000-2001
Sep -3.7 15.8 1.1 13.3 24.6
Dec -6.7 -0.6 -0.6 9.0 24.1
Mar -6.3 -13.2 -0.5 3.5 23.6
Jun -1.1 -16.7 1.3 1.3 23.6
2001-02
Sep 4.2 -9.9 2.8 3.0 23.9
Dec 5.9 2.3 2.8 6.5 24.2
Mar 5.1 14.7 2.6 9.8 24.6
Jun 4.6 21.3 1.8 10.3 24.9
2002-03
Sep 7.9 25.5 1.3 8.8 25.0
Dec 10.3 30.8 0.9 6.8 24.9
Mar 7.3 33.5 1.1 5.2 24.9
Jun 5.5 34.6 2.0 5.5 25.1
2003-04
Sep 6.0 32.3 2.4 6.6 25.3
Dec 6.3 27.5 2.3 8.1 25.5
Source: ABS Cat. Nos. 5651.0 and 5206.0
Notes:
(a) From National Accounts - Financial year figures are averages of quarterly data
Reference year for chain volume measures is 2001-02
All figures are trend estimates
29
Table 13: Company Profits
The latest company profits data from the ABS's Business Indicators publication suggests that company profits before income tax continued their recent strong growth, increasing 6.3 per cent in the December 2003 quarter, to be a significant 27.5 per cent higher over the year.
Data from the most recent December quarter National Accounts appears to further confirm that recent strong growth in business profits has continued over the past year. The Gross Operating Surplus measure from the national accounts increased 2.3 per cent in the December 2003 quarter, to be 8.1 per cent higher over the year.
Also, the most recent national accounts data shows that the profit share of total factor income has continued to grow over the past year, and reached a new record high of 25.5 per cent during the December 2003 quarter.
30
TABLE 14: EMPLOYMENT
All persons
Full
Time Part
Time Total Total Male
Total Female
percentage change on
year
earlier year
earlier previous
period year
earlier year
earlier year
earlier
Year - 1998-99 1.6 3.8 2.2 2.0 2.4 1999-00 2.5 3.5 2.8 2.2 3.4 2000-01 1.5 3.7 2.1 1.4 2.9 2001-02 -0.5 5.8 1.2 1.1 1.3 2002-03 1.6 4.6 2.4 1.8 3.2 Quarter - 2001-02 Sep -1.4 5.6 0.2 0.5 0.1 1.0 Dec -0.9 6.0 0.3 0.9 0.7 1.2 Mar -0.3 6.6 0.6 1.5 1.5 1.5 Jun 0.4 5.0 0.5 1.7 2.0 1.3 2002-03 Sep 1.0 4.3 0.5 1.9 1.8 2.1 Dec 1.6 5.1 1.0 2.6 1.9 3.5 Mar 2.1 5.0 0.9 2.9 2.0 4.1 Jun 1.7 3.9 -0.1 2.3 1.5 3.3 2003-04 Sep 1.9 2.5 0.2 2.0 1.8 2.4 Dec 2.3 1.2 0.9 2.0 2.5 1.3 Month - 2002-03 Jul 0.9 4.1 0.1 1.8 1.9 1.6 Aug 1.0 4.2 0.2 1.9 1.8 2.0 Sep 1.2 4.5 0.3 2.1 1.8 2.5 Oct 1.4 4.9 0.3 2.4 1.8 3.0 Nov 1.6 5.2 0.4 2.6 1.9 3.5 Dec 1.9 5.3 0.4 2.9 2.1 3.9 Jan 2.1 5.2 0.3 3.0 2.1 4.1 Feb 2.2 5.0 0.2 3.0 2.0 4.2 Mar 2.1 4.7 0.0 2.8 1.9 4.1 Apr 1.8 4.4 -0.1 2.6 1.6 3.7 May 1.6 4.0 -0.1 2.3 1.4 3.3 Jun 1.5 3.4 -0.1 2.1 1.4 2.9 2003-04 Jul 1.6 2.9 0.1 2.0 1.5 2.6 Aug 1.9 2.4 0.2 2.0 1.8 2.4 Sep 2.1 2.0 0.3 2.1 2.1 2.1 Oct 2.3 1.6 0.3 2.1 2.4 1.7 Nov 2.3 1.2 0.3 2.0 2.6 1.3 Dec 2.3 0.7 0.3 1.9 2.7 0.9 Jan 2.3 0.4 0.2 1.8 2.7 0.6 Source: ABS Cat No. 6202.0 Notes: All figures are Trend estimates Annual and Quarterly figures are simple averages of monthly data
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Table 14: Employment
Since the ACTU's original submission was prepared, the ABS has release new Labour Force data for the months of January and February 2003. Table 14 provides an update of the trend employment numbers.
The months of January 2004 saw solid increases in the total number of employed persons.
The total number of employed persons increased by 18,100 in January 2004 brining a total increase of 156,600 additional employed persons over the year to January 2004.
In percentage terms, total employment grew 0.2 per cent in January 2004, to be 1.8 per cent higher over the year.
The number of full-time jobs rose 2.3 per cent over the year to January 2004, while the number of part-time jobs rose 0.4 per cent over the same period. Total employment amongst males and females, increased by 2.7 per cent and 0.6 per cent respectively over the year to January 2004.
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TABLE 15: UNEMPLOYMENT
Looking for Full-Time
Work Looking for Part-
Time work Total Unemployed
'000 rate '000 rate '000 rate rate (Seasonally
Adjusted) Year - 1997-98 144.6 2.2 593.3 21.3 737.9 8.0 8.0 1998-99 147.5 2.2 147.5 19.3 691.6 7.4 7.4 1999-00 148.8 17.1 484.5 17.1 633.3 6.6 6.6 2000-01 152.4 2.2 472.1 16.2 624.5 6.4 6.4 2001-02 158.4 2.3 498.7 16.2 657.1 6.6 6.6 2002-03 155.6 2.3 461.5 14.6 617.4 6.1 6.1 Quarter - 2001-02 Sep 161.6 16.9 514.5 16.9 676.1 6.9 6.8 Dec 162.1 16.7 513.4 16.7 675.5 6.8 6.8 Mar 157.4 16.0 494.0 16.0 651.4 6.6 6.6 Jun 152.6 15.3 472.8 15.3 625.4 6.3 6.3 2002-03 Sep 160.2 14.8 458.3 14.8 618.5 6.2 6.2 Dec 160.2 14.4 454.5 14.4 614.7 6.1 6.1 Mar 151.8 14.6 465.5 14.6 617.4 6.1 6.1 Jun 150.3 14.6 466.3 14.6 616.5 6.1 6.1 2003-04 Sep 149.4 14.2 449.3 14.2 598.7 5.9 5.9 Dec 150.2 13.6 429.2 13.6 579.4 5.7 5.6 Month - 2002-03 Jul 157.4 2.3 462.2 14.9 619.7 6.2 6.1 Aug 160.7 2.3 458.2 14.8 618.9 6.2 6.3 Sep 162.4 2.4 454.6 14.6 617.0 6.2 6.2 Oct 162.4 2.4 452.6 14.5 615.0 6.1 6.0 Nov 160.6 2.3 453.6 14.4 614.2 6.1 6.1 Dec 157.7 2.3 457.2 14.4 614.8 6.1 6.1 Jan 154.1 2.2 461.9 14.5 616.1 6.1 6.1 Feb 151.3 2.2 466.1 14.6 617.4 6.1 6.0 Mar 150.0 2.2 468.6 14.6 618.7 6.1 6.1 Apr 150.0 2.2 468.8 14.7 618.8 6.1 6.1 May 150.3 2.2 466.9 14.6 617.2 6.1 6.0 Jun 150.5 2.2 463.0 14.6 613.5 6.1 6.1 2003-04 Jul 150.1 2.2 456.9 14.4 607.0 6.0 6.1 Aug 149.3 2.1 449.3 14.2 598.7 5.9 5.9 Sep 148.8 2.1 441.7 14.0 590.4 5.8 5.8 Oct 149.0 2.1 434.7 13.8 590.4 5.8 5.7 Nov 150.0 2.1 428.8 13.6 583.7 5.7 5.6 Dec 151.6 2.1 424.2 13.5 575.8 5.6 5.6 Jan 153.0 2.2 421.1 13.4 574.1 5.6 5.7
Source: ABS Cat No. 6202.0.55.001
Notes:
All figures are Trend estimates (except final column which presents the seasonally adjusted unemployment rate)
Annual and Quarterly figures are simple averages of monthly data
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Table 15: Unemployment
The most recent labour force data shows that Australia's unemployment rate remained at 5.6 per cent in the January 2004 in trend terms. In seasonally adjusted terms the unemployment rate increased slightly to 5.7 per cent for the same time period.
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TABLE 16: BALANCE OF PAYMENTS
Goods
Credits Debits Net
balance Net
Services Net
Income
Net Current
Transfers
Balance on
Current Account
Current Account
Deficit
$ million % of GDP
Year -
1997-98 87 684 -92 258 -4 574 -1 220 -18 326 18 -24 102 3.9
1998-99 85 962 -98 557 -12 595 -1 840 -18 259 - 741 -33 435 5.1
1999-00 96 933 -110 606 -13 673 -1 106 -18 057 227 -32 609 4.8
2000-01
119 929 -119 986 - 57 - 599 -19 299 15 -19 940 2.9
2001-02
121 246 -122 383 -1 137 - 187 -20 436 - 26 -21 786 3.0
2002-03
116 031 -132 892 -16 861 - 642 -22 474 - 175 -40 152 5.5
Quarter -
1998-99
Sep 22 413 -24 714 -2 301 - 514 -4 515 - 256 -7 586 4.8
Dec 21 837 -24 618 -2 781 - 528 -4 616 - 193 -8 118 5.0
Mar 20 960 -24 471 -3 511 - 448 -4 629 - 153 -8 741 5.4
Jun 20 752 -24 754 -4 002 - 350 -4 499 - 139 -8 990 5.5
1999-2000
Sep 21 565 -25 687 -4 122 - 321 -4 412 132 -8 723 5.3
Dec 23 272 -26 981 -3 709 - 332 -4 423 82 -8 382 5.0
Mar 25 145 -28 195 -3 050 - 278 -4 543 31 -7 840 4.6
Jun 26 951 -29 743 -2 792 - 175 -4 679 - 18 -7 664 4.5
2000-01
Sep 28 410 -30 062 -1 652 - 148 -4 728 - 26 -6 554 3.8
Dec 29 627 -30 076 - 449 - 163 -4 768 - 2 -5 382 3.1
Mar 30 685 -29 961 724 - 178 -4 860 22 -4 292 2.5
Jun 31 207 -29 887 1 320 - 110 -4 943 21 -3 712 2.1
2001-02
Sep 31 022 -29 932 1 090 - 3 -5 003 2 -3 914 2.2
Dec 30 460 -30 203 257 6 -5 039 - 12 -4 788 2.7
Mar 29 923 -30 720 - 797 - 56 -5 108 - 3 -5 964 3.3
Jun 29 841 -31 528 -1 687 - 134 -5 286 - 13 -7 120 3.9
2002-03
Sep 29 954 -32 493 -2 539 - 144 -5 493 - 37 -8 213 4.5
Dec 29 706 -33 394 -3 688 - 115 -5 638 - 65 -9 506 5.2
Mar 28 825 -33 709 -4 884 - 160 -5 673 - 50 -10 767 5.8
Jun 27 546 -33 296 -5 750 - 223 -5 670 - 23 -11 666 6.3
2003-04
Sep 26 444 -32 627 -6 183 - 211 -5 725 - 16 -12 135 6.5
Dec 25 669 -32 049 -6 380 - 156 -5 821 - 33 -12 390 6.5
Source: ABS Cat. Nos. 5302.0, 5206.0
Notes:
All figures are trend estimates
35
Table 16: Balance of Payments
Australia's Current Account Deficit, as a proportion of GDP, remained steady at 6.5 per cent during the December 2003 quarter.
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TAG 2
A needle in a haystack. Do increases in the minimum wage cause employment
losses? Working paper 90, Ian Watson, ACIRRT, University of Sydney,
March 2004
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TAG 3
Impact of Minimum Wages on Employment: Some Comments U DOL D¶ V� ( OF� RQP\6OW JW � VOJD¶ OV� 6W U D6� OKU OH &OEVRKRXI �
P.N. Junankar University of Western Sydney
March 2004
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Impact of Minimum Wages on Employment: Some Comments on Andrew /HLJK¶V�SDSHU�DQG�UHVSRQVH�WR�P\�FULWLTXH
P.N. Junankar University of Western Sydney
March 2004 Unfortunately I have not had time to provide a formal rebuttal to Andrew /HLJK¶V�response to my critique. However, I have some general comments on this issue: 1. The international literature on the impact of minimum wages on employment is still a very controversial area. In any case a summary of this literature would suggest that there are several problems with the theoretical and empirical argument that an increase in minimum wages leads to a decline in employment. The seminal work by Card and Krueger in the USA and Alan Manning of the London School of Economics has at least shown that the impact of minimum wages on employment does not necessarily lead to a decrease in employment. The basic theoretical case that minimum wage increases lead to a fall in employment is based on a simple competitive model. If we allow for imperfect markets, see Alan Manning, then the result breaks down. If we look at the data we see that many employers pay more than the minimum wages perhaps because of efficiency wage reasons (a better wage leads to a lower rate of turnover, increased productivity, etc.). 2. Although Andrew Leigh has acknowledged that his data were faulty he claims that his results stand with the corrected data. However, I still believe his econometric analysis is weak for the following reasons:
(a) His dependent variable is a continuous variable but his independent variable is zero for all periods except six points. This means that his regression results are essentially based on six points not the 247 data points. In that case there is a spurious degree of observations and degrees of freedom. If he were to take the relative minimum wages for WA relative to the other State(s) he could get a continuous independent variable. A better procedure may be to use panel data for firms.
(b) Any time series econometrician would look at the stationarity properties of the variables. The independent variable would clearly be I(0) but the dependent variable may be I(1), in which case there are problems. Again, any econometrician would provide some summary statistics like Lagrange Multiplier tests on serial correlation, tests for heteroscedasticity, normality of errors etc. Leigh simply provides a simple R squared which is so small that clearly he is explaining a negligible proportion of the variance of the dependent variable.
(c) He does not control for any other variables besides minimum wages. Clearly the employment population ratios would be affected by differential impacts of exchange rates, primary product prices, etc. on different states.
(d) The issue of time lags that I had raised is not really answered by Andrew Leigh. The problem is the following: an increase in minimum wages in the first instance would (in a competitive world) affect the hiring of new workers. Next, workers whose contracts are expiring would not be re-hired. Only as a last resort would employers fire existing workers. As a result the impact using conventional neoclassical economics would be spread out over a period of time (which much research suggests would be over at least 12 months). A simple six-month lag as used by Leigh is not appropriate.
60
(e) Traditional econometricians argue that if data are seasonally unadjusted we should use seasonal dummies. We could always check to see if there are any structural changes in seasonality. A simple moving average procedure may lead to arbitrary smoothing.
(f) His argument that an increase in minimum wages in WA would only affect the relative employment of WA (compared to some other state or states) is clearly not in accord with simple competitive neoclassical economics that emphasises a downward sloping demand curve for labour. In other words, the increase in employment in WA after an increase in minimum wages is counter intuitive in the neoclassical model.
(g) There is a significant problem about what is an appropriate control group for Western Australia.
(h) There is clearly a need for a much more systematic analysis of the data using better econometric techniques that allows for lags, has more independent variables, uses a continuous relative wage variable, etc.